Most large companies on the stock market started off as penny stocks, which are classified as any stocks that are priced under $5. The penny stock market is somewhat unpredictable, and it takes a bit of knowledge and skill to select the right stocks.
The most successful traders are those who use the general lack of knowledge that people have about penny stocks, to their financial advantage.
How to invest in penny stocks
Penny stocks, just like regular stocks, are bought through a stockbroker. NASDAQ and NYSE may make reference to “low-priced stock”, rather than penny stock, but it is essentially the same thing. The disadvantage of having to work through a stock exchange is that your financial returns are limited due to the strict rules that must be followed. The best exchanges to use for penny stocks are OTCBB and Pink Sheets.
Pros and cons for trading penny stock
The prices of penny stock are certainly not set in stone, and fluctuate very often. It has been known for some stock to multiply over a hundred times in a couple of weeks, but occurrences like that are relatively rare.
Penny stock can sometimes be somewhat difficult to sell and will often not do well. This can mean that buying a lot of penny stock can leave you with a useless stockpile that you are unable to offload, which is a massive problem, especially if you were tricked into buying it under false promises.
OTCBB ensures that all companies that are listed on the trading platform follow the required rules and requirements. Stockbrokers have a legal obligation to give their clients documentation that explains the risks associated with penny stocks, before any trades are allowed to be confirmed.
Watch out for scammers
One of the first tactics used by scammers was to spam in every online forum or chat room that was available with the praise of really obscure stock. Unfortunately, enough people would fall for that trick, and end up buying it. The stock was usually never part of a solid legitimate business, and the scammers would take all the profit.
Another tactic that is used in more recent times is called pump and dump. This is where someone will buy a massive amount of worthless stock, which will sharply increase the stock price due to the demand. Other investors will see this sharp rise and will assume that the stock is doing well due to legitimate reasons and will end up buying some stock at higher prices. After this has happened, the original person will then sell all of their stock at the higher price.
How do I make money trading penny stocks?
The safest way to make serious profit by penny stock trading is to understand fully how penny stocks work. It’s important that you do as much research as you can by reading financial data and business reports of any potential stock that you wish to buy. The business model of the company is also a key factor when looking to invest in them. Look for companies that are obviously a genuine business trying to get a foot in the door, which you will be able to determine due to the quality of their financial reports.
Good penny stocks to watch for in the future
As you should be already aware, trading in the penny stock market is known to be a high-risk, high-reward type of investment. While the risks are very apparent, you do have the potential to generate enormous monetary returns.
The risks involved are due to the lack of reliable information concerning the specific stocks. Due to the lack of financial data, it’s quite rare to find a company that you can fully research before you decide to invest in them.
However, as long as you are aware of the risks, we believe that the companies from the penny stocks list we have compiled below could be well worth investing in.
Houston Wire & Cable Company (NASDAQ:HWCC)
This stock is added to the list due to the industry revival that many people think will happen under President Trump. This company distributes cable and wire throughout the US and serves industries like oil and gas, automation, and many more. Due to being exposed to so many different industries, this should allow the company’s profits to increase as long as the local economy picks up.
It’s important to look past the latest financial performance from the company though. Industrial market conditions did not improve last year due to the demand levels being inconsistent. The stock price has increased by approximately 30% since Trump was elected, so it seems that many other people had the same idea. Cable and wire go into every single new thing that is built, so as long as the domestic economy keeps improving, this stock should also increase in price.
DroneShield Ltd (ASX:DRO)
DroneShield Ltd produces acoustic detection sensors which can enable it to sense drones that are invisible to radar. This company also manufactures a DroneGun, which is a portable device that can disable drones as far away as 2 km. Unmanned aerial vehicle flyovers are quite popular with governments and hobbyists alike, so there is a large market for products like this.
The DroneGun was used at the World Economic Forum in Switzerland to assist security forces in protecting their meetings from possible aerial attacks. If governments are already backing the products, it makes sense that others will too, thus pushing the stock prices higher.
Kraken Sonar Inc (CVE:PNG)
Kraken Sonar Inc is a company that designs and develops advanced acoustic and sonar sensors that are used in military and commercial UAVs. These sensors improve the imaging capabilities for seabed survey and will provide a much higher resolution than regular sonars.
It seems that in recent financial reports, the company’s revenue has increased 91%, so there is a real momentum at the moment. Gross profit for last quarter was at 74%, which made a substantial $19,000 in profit. A year ago they had a loss of $400,000, so as you can see, they have really made significant progress since then.
Excluding the strong financial reports, it’s also worth noting that the company is entirely debt free. That is very rare to find, and it means that they will not have to spend endless resources on development and research for their projects.