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Risks To Consider Whenever You Trade Penny Stocks

There are many rewards promised for anyone who wishes to trade penny stocks. Monumental gains have been experienced in a matter of hours in this field. Millionaires have been made out of people who have invested a few thousands. Success has been proclaimed by investors who have experienced substantial profit in this business.

But with every success story shared by those who trade penny stocks, there are stories of despair and frustration that can be shared by those who have experienced terrible losses in this industry. Whenever anyone would trade penny stocks, he is making his investment susceptible to numerous high risks, after all. And what are these risks, you might ask? Consider the following.

Tip: When purchasing stock, make sure you are paying attention to the average volume of shares traded per day. This is of the same importance as keeping in mind the commission for selling as you invest and begin purchasing stock.

* People who trade penny stocks deal with a highly volatile market. Diligence is required because the value of penny stocks rise and fall in a matter of minutes. Miss that minute of glory, and chances are, your shot at gold would be lost forever.

* The word "penny stocks" is a misleading term. Each share may come at a low price, but you would usually trade penny stocks by the thousands. This means that you stand to lose more if your investment suddenly falters.

Tip: Never be scared to walk away from the market for a while. It is perfectly fine to take a break from the market if it conflicts with your life or your schedule.

* Penny stocks are sometimes issued by less than reputable companies. There are even occasions when dummy corporations issue penny stocks so that they could earn fast from the IPO and thereafter disappear from public sight.

* The value of penny stocks is driven by hype. A few press releases here and there, a mention in a generally circulated newspaper, a full page ad in a leading magazine, and the value of the stocks would increase. But as with everything that is driven by hype, whenever we trade penny stocks, we would have to deal with the consequences that would result once the hype dies down. Will the penny stocks be able to stand on their own? Or will they sink so deep without the support of a marketing push?

Tip: Never keep your funds trapped in stocks that are unprofitable. Though such stocks may stay even, producing no profits but no losses, you do not need to keep funds locked into them.

* Those who trade penny stocks would also have to deal with this industry's failure to make use of traditional stock charting methods. This would result in a lot of uncertainty about your dealings as well as the stocks themselves.

So how should you cope up with these risks when you trade penny stocks? This tip is as simple as it is effective: recoup your capital as soon as possible, then invest in new stocks using the profit you have earned. This way, when you trade penny stocks, you would only stand to lose what you have already earned and not what you have taken out from your original funds.

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