How to trade in penny shares

Penny Shares are traded differently to other kinds of stocks and shares. They are often not traded in the stock exchange but instead are traded in the over-the-counter (OTC) market. In order to trade in Penny Shares you will need to hire a broker to do the buying and selling, so on top of the cost of shares you will also need to consider the broker’s fee when calculating possible profit or loss. It is also because of this fee that you will ordinarily want to buy and sell penny shares by the thousand rather than individually in order to cut down on fees and maximise your profit potential.

Buying and Selling

There are two types of order used for buying or selling Penny Shares when dealing with your chosen broker. One kind, the market order, basically requests purchase or sale of a certain amount of shares regardless of share price. This is the kind most often used by beginners in Penny Share trading due to its simplicity; just order the number of shares you want and the broker will buy them. The other kind of order is known as a limit order and is for those who understand a bit more about the market to take advantage of fluctuations and such. Basically with a limit order you place constraints on the order based on a limiting price. For example, you may wish to buy only when the shares are below a certain threshold value or sell when the price goes above another. Limit orders allow you greater flexibility and can help you to maximise your earnings.

Avoiding Bad Stock

There is one thing you have to be aware of before you begin trading Penny Shares. It is a risky business. The Penny Shares marketplace is extremely volatile and is often manipulated by people looking to make money for themselves. Due to the lack of financial history on the companies it can sometimes be difficult to judge a good investment and on occasion people can be ripped off. This does not mean that you shouldn’t invest in Penny Shares, just that you need to arm yourself with the proper knowledge and experience of stock trading before taking the plunge.

Many people advocate spending a year or more trading mid- and high-cap stocks before investing in low-cap Penny Shares. This enables you to gain experience reading balance sheets and tracking the income and cash-flow of companies that you invest in whilst staying relatively safe. This may or may not be the right way for you, but you should certainly try to learn all you can about the business world to prepare for trading. It is important to remember that Penny Shares are not simply any cheap shares. You should try to avoid companies that have less than a few million in revenue per year at least. You should also avoid companies that are heavily in debt.

If you take the time to research properly and know what you are doing when you come to invest you are much more likely to earn money from your Penny Shares investment.