When you think of penny stocks, you might think that they just aren’t worth the risk. How can you make money selling stocks worth pennies, right?
Well, contrary to some critics, you can actually make a lot of money trading penny stocks. It really comes down to volatility. For example, a stock may jump from $0.09 to $5.00 in a matter of weeks. That is quite a jump.
And, let’s be honest, many of us can use the additional income. Continue reading to learn how to make penny stocks work for you.
Consider the Life of a Millionaire
Most of the world’s richest individuals made their money in the stock market. Of course, you can’t become an expert until you start researching and practicing.
And, you want to be mentally prepared and willing to become wealthy. This is why many people start by taking the Timothy Sykes millionaire challenge. You see, not everyone is willing to learn how to make money investing in and trading penny stocks.
But, if you are ready, then it can lead to an excellent source of income.
Read the Annual 10-K Filing
All companies are required to disclose their annual 10-K filings. This document summarizes a company’s financial health with information on outstanding shares, revenue, company history and earnings.
It is also submitted to the U.S. Securities and Exchange Commission (SEC). Plus, any company that falsifies their 10-K can be charged with fraud and even have their stocks delisted.
When researching for penny stocks, you want to look at the section outlining executive compensation. This shows the salaries of company executives.
Here’s the catch: if you see that the executives are paid mainly in stock options, it shows they are investing in the company’s future. To make money, they must ensure the shares become more valuable.
A red flag would be if the executives are paid in cash.
Find Penny Stocks
You can purchase penny stocks through a stockbroker. Although, the trades normally involve a large number of shares. So, pick a broker that doesn’t charge too much in surcharges.
It’s better to stick with a broker that offers a flat commission. Also, take a look at restrictions. Some brokers will charge more for massive orders.
Some may even limit the number of shares you can trade in one day. Instead, look for brokers that allow for unlimited shares.
Stay Far Away from Pump-and-Dumps
The reason for some of the hesitation around penny stocks is people have been burned by pump-and-dump scams. You might have a salesperson contact you trying to aggressively promote a particular stock.
Often, they say it could be a life-changing opportunity. Beware of something that sounds too good to be true.
The name pump-and-dump is a reference to a practice where the salespeople promote the stock to pump its share price. Once it gets high enough, they dump the stock.
Of course, the dump will lower the price and investors will lose money. So, don’t buy a penny stock because a random salesperson says you can get a 500 percent return.
Do your research first.
Penny stocks can offer profitable returns if you pick the right ones. Just make sure select an affordable broker, and pick stocks based on research not hype.