Published On: Sat, Oct 5th, 2019

Your Penny Stock Pitfall Cheat Sheet

It’s easy to understand the allure of low-cost securities and trading options. The less you need to pay when getting involved with a trade, and the more you can potentially earn in the long-term, the better your strategy for wealth-building becomes. A low-cost security requires very little initial investment and can lead to a lot of money in the long run. However, like any investment opportunity, these vehicles aren’t without their threats. 

Not everyone will be able to pinpoint the kind of companies that are poised for success in the low end of the market. While there are plenty of penny stocks out there that have led to significant victory for the right people, there are also countless that have driven their investors towards losses too. The best way to be prepared is to understand the pitfalls that you’re exposing yourself too when you start splashing your cash in the low-end of the market.

Protecting Yourself from Penny Stock Issues

The key to success with any wealth-building plan is knowing what you’re dealing with. The more you understand about the market, your trading strategy, and the stocks and securities that are available to you, the easier it is to make informed and intelligent decisions about your future. It’s the people who jump into trading without any prior knowledge that are usually the ones who get burned. 

A few golden rules to follow when trading in low-price assets include:

  • Make sure you avoid low-caliber markets: Pink sheets and over the counter markets might seem like a good idea at first, but they’re not regulated, which means you’re not fully protected if something goes wrong. 
  • Don’t buy anything based exclusively on a tip: When investing in any stock or security, it’s crucial to take your time and do your own research. 
  • Never follow free stock picks: Usually, the people who send out these newsletters and alerts have motivations that they may not be telling you about. Be wary of anyone who seems to be trying to help you make money out of the goodness of their heart. 
  • Get involved with only fundamentally solid picks: You should be able to ascertain the quality and potential of a company by examining its financial position. 

Don’t Fall for Simple Tricks

Penny stocks can be an excellent investment opportunity, but they also have risks and challenges to consider too. Many of the people who end up struggling with this kind of assets are the ones that believe the incredible stories that companies tell to try and ramp up investment. For instance, don’t fall for anyone who tells you that their company has found a cure for cancer or a way to run a vehicle with just the power of gravity unless you can find real evidence that they’ve accomplished these things.

Additionally, it’s always worth calling the investor relations team at the company that you’re thinking of getting involved with if you have any questions. If these teams aren’t willing to respond to your concerns, then that’s a red flag that they’re just looking for quick cash, and that they don’t have a way to make you any money. 

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