How to Tell Between a Dud and a Hot Penny Stock

If you’re looking for a hot penny stock, obviously you’re hoping to invest in a company that has the potential to thrive. With this type of stocks, traders usually invest in small companies that are predicted to grow big. This is why many usually advise to invest when a small company is about to do a merge with a larger company.

So what exactly is a small company? There are several definitions. Some individuals describe a small company as one with a market cap below $1 billion. On the other hand, it may be described as a small cap below $2 billion. And there are other descriptions. In the previous decades the term “small company” has meant bigger and bigger companies. And even now, NASDAQ’s small cap market system progresses to list truly small companies, several of which would be categorized as nano cap.

One thing you should understand is that investing in stocks is not for everyone. However, there’s always a first experience, and if you’re a beginner trader, it’s best to do as much research as you can before jumping in. Note that investing in stocks is widely considered to be high risk, due to its volatile nature. Penny stocks have prices anywhere between $0 to $5.

When you purchase a hot penny stock, go for companies whose future looks positive. While looking at a company at face value might give you an idea that it will progress, with the high risk involved, you’re probably going to be wrong. For instance, a company is offering penny stock shares at a cost of $0.001 per share. If you purchase a million shares, you will have shelled out $1,000. Now this is going to seem as though your shares are valued at $1,000 – this is what lands so many investors in big disappointment.

The biggest issue now has to do with the bid. You need to find enough buyers at the right prices when you plan to exit. With this matter in hand, what you need to do is to keep them for a very long period hoping that the company will proliferate and that your stocks will then be priced much higher. At the end of the day, you will always need an expert or a legitimate service to help you find companies that are likely to grow big. Couple with your own research and you can be a winner.

When looking at a hot penny stock, research every possible angle of a company. What is its target market? How is it being run? Is it in huge debt? These are just a few basic questions to start with.

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