Penny Stocks - 5 things you and every investor should know.

December 29, 2012 Written By - Elisa Lee
InvestorsHub, Harrisonville MO

Penny Stock is an investment sector that can generate a lot of money. Every day there is a stock that makes huge gains. Finding the next big rising stock is the dream of every investor. But deciding which stock to buy is a very tough task. Good resources and tools are probably the biggest two keys to finding that next great stock. But penny stocks are hugely risky. However every day there is a stock that has huge gains and every day there are big losers too.

Penny Stocks are attractive to many people because of the wild ride which promises high potential returns. Hundreds of penny stocks will have the price change 20% or more during any given market session. Compared to most banks that provide interest rates on your cash of less than .01% yearly, penny stock huge profit potential can seem incredibly attractive.

Picking the right penny stock is the most important skill determining success. Some investors like to use penny stock newsletters as a way to find the next winner. Others use tools like toplists and stock market scanners. Some investors scour the internet for savvy investor's penny stock picks and jump on the band wagon of people who are respected experts. Users of this site mostly prefer the interaction of a good penny stock forum and message board where pros and cons of stocks are thrashed out in exhaustive discussion often packed with fiery debate…

Penny Stock Forum and message boards are a great place to find individual investor opinions. Other popular sources like newsletters and twitter are broadcast platforms, mostly one way communications. On a message board there is likely to be as many detractors of a penny stock as there are fans. The biggest and best penny stock message boards like InvestorsHub, give access to a huge community of penny stock investors, that are vocal, experienced and gives the new investor the opportunity to sit on the side-lines and observe the pros and cons of the market without risking a penny.

The powerful tool for active investors is Penny Stock Level 2. It lets the user see the order book for a stock, which is in effect the engine of the market itself. Level 2 lets you in under the hood showing you what is going on trade by trade, order by order.

Level 2 provides a clear view of the market activity. Actual stock buys and sells start as orders on the book. When lots of buy orders are placed, the price usually goes up. For penny stocks the price can go up a lot with just a few buyers. No other single tool can give you so much relevant data in real time.

While Penny Stock investments can pay big, they are extremely risky. Careful risk management is key to any successful investor's portfolio growth. The internet is full of horror stories about losing money in the stock market. Too many big losses lead to "gambler's ruin" where the account is wiped out and cannot recover. Every day there is a stock whose value drops a lot. Using tools like Level 2 and Penny Stock Forums can give you the chance to read negative feelings first and get out of a stock before it drops too much. Avoiding and minimizing losses is crucial part of making money. Avoiding a loss is the mirror image of making a profit.

Penny Stock investing is not for everybody. Penny stock traders are usually looking for aggressive gains and don't mind the big risk associated with the process. The penny stock market has over 500 million dollars in daily trading volume, but where there are resources there will be predators. Before getting involved in the Penny share market be sure to get the best tools before going any further. Then you should spend a fair amount of time of messages boards like Investorshub getting a feel for the risks involved.

Penny stock trading is a skill game and you should prepare yourself properly before you make you first tentative investment. There will be another hot penny stock tomorrow and the day after and the day after that, so there is no hurry. The most important thing is to be prepared properly to trade and invest in the most exciting market in the world.

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