What Are Penny Stocks?
I LOVE reviewing the basics over and over and over again, see my free guide to penny stocks here, but what are penny stocks exactly, and how can you stand to earn from trading them?
Here, I’ll offer a brief primer of the basics, as well as invaluable information about how my millionairestudents and I have personally found success with penny stocks.
This is vital information for new traders, but it’s also a great reminder for more established traders. This overview is also a great preparatory read before you delve into my FREE e-guide: Penny Stock Trading 101. This guide will take you from the basic question of “What are penny stocks?” and well beyond so be sure to study it meticulously!
Download a PDF version of this post as PDF.
To be clear, despite the entire world hating on this niche, I have made my millions by trading penny stocks. The Tim Sykes Millionaire Challenge was designed as a means for me to teach others how I did it, in hopes that they can find their own success and in just a few years we already have several millionaires created and they actually help me mentor other students now too! I really do believe that this can be a method of earning income that can help people improve their lives and make their dreams a reality, but to do so, you’re going to have to study harder than you ever thought possible as no matter the niche, never forget that 90% of traders lose money and it’s due to lack of preparation!
What are penny stocks? You may be surprised to learn that penny stocks rarely actually cost pennies. “Penny stock” is a catch-all term for low priced stocks, typically under $5 per share. They are VERY lowly priced because the companies in question are small. They usually only have 1-2 products and are not making huge profits.
Actually, most of these companies will never begin to turn big profits. The majority will likely fail. Wait: if most of these companies are going to fail, why on earth would you ever trade penny stocks? As I teach students of the Tim Sykes Million Challenge team, this risk factor is exactly what can deliver rewards.
Why are penny stocks so little-known? In general, penny stocks are lesser known than stocks traded on the big national exchanges. In part this is because the companies are smaller; however, it’s also because in large part, investors are disinterested in penny stocks.
Additionally, these stocks aren’t always listed on the national exchanges like the NYSE or NASDAQ, either. Rather, they are offered via other markets, such as Pink / Grey Sheets, OTCBB (Over-the-Counter Bulletin Board) and the NASDAQ Smallcap Market. These exchanges have varying degrees of regulation for company reporting, but in general are not as stringent as the major exchanges. Because of this, there is an inherently higher level of risk involved in trading, and it’s vital to do your own research on the companies.
The fact is, very few of these “long shots” will get lucky; as previously noted, many of the companies will fail. As such, many investors don’t like the odds and steer clear, choosing to focus more on safe bets.
Why trade penny stocks? Interestingly, it’s these negative points about penny stocks that can actually be some of their greatest selling points.
Since many investors are disinterested in penny stocks, this allows traders like me (and you) to get in there and trade with FAR less competition than anywhere else in finance. That is to say: the same volatility that is a turn-off to so many investors can be an opportunity for other investors.
The caveat here is that as a penny stock trader, you must know that there is an inherent danger to trading penny stocks. Respecting this risk, and doing all you can to mitigate it, is very important. This makes it extremely important to learn the “rules” and study carefully so that you can make educated and calculated trades. If you don’t take the time to learn, you will likely lose money and get discouraged quickly.
Benefits of trading penny stocks. The benefits of trading penny stocks can be many. For one, there’s an easy entry into the market. For new traders with small accounts, penny stocks are accessible both in price and the ability to buy and sell. You really just need a brokerage account and a laptop, really. My top student really did start with just $1,500 of his money as this article highlighted.
Trading penny stocks is a profession which rewards routine and regularity and punishes those who get too cocky or lazy. I am constantly urging my students to be diligent about studying and preparing, learning how the market works, and keeping track of what is working for them. As you improve in your trading technique, chances are you’ll reap rewards in your career.
Additionally, trading penny stocks allows for flexibility. You can trade from anywhere. As you can see by my social media feed, I work from a laptop and have taken trading to all sorts of far flung destinations.
How did I become a millionaire? With such low priced stocks, how did I become a millionaire by trading penny stocks? By adding up my gains over time. Honestly, my average profit per trade is just $2,000. However, these trades add up. If I am making $2000 per trade over time, and make 1,000 trades, after a while I’ve earned $2 million. I never feel the need to go for the home runs; I’m content taking the singles, since they win the game and help me make steady income over time.
I’m not always right! I feel like it’s important to say that I’m not always right in my choices for stocks to trade. I’m wrong about 30% of the time, but the keys are that I keep my losses small, and I learn from my mistakes, never letting small mistakes turn into potential big disasters.
I like to emphasize this again and again because many traders become discouraged at early losses, but they shouldn’t as it’s something you’ll have to learn to deal with and minimize over time. Losses don’t have to mean that you’re failing. They are part of the process. As long as you minimize losses and learn from them so that you can approach succeeding trades differently, they can actually become your greatest teacher over time!
What are penny stocks? For some, they can provide an opportunity to make income. Trading penny stocks is not for everyone. It requires patience, prowess, and determination. You have to be willing to learn how the market works and be ok with some bumps in the road as you learn. But if you stick with it, trading penny stocks can be a potentially life changing career move.
Did this article help you understand penny stocks a bit better? Leave a comment and let me know if you would like more basic posts like this, I think they’re EXTREMELY useful, but you tell me what you think!