Penny Stocks And How To Trade Them
For many new stock traders and investors, lack of accessible capital can be a deterrent to anyone’s strategy. For this reason, young and many times, less experienced investors will look to penny stocks to give them a foot in the door.
Though these types of low priced stocks can present a laundry list of risks related to volatility, price movement, and lack of market liquidity, the sheer potential to profit off of something increasing by a penny, or even less, has its own place in the market.
There are generally 4 different price points early penny stock traders will look at.
- Triple Zero Penny Stocks
These types of stock trade under 1 tenth of a penny or anywhere between $0.0001 and $0.0009. The name for these penny stocks comes from the price and how there are 3 “zeroes” before the final number.
The reason that many like to trade these kinds of stocks is because it doesn’t come down to pennies for realizing exponential gains but thousandths of a penny. Simply put, if a triple zero penny stock trading at $0.0001 goes up to $0.0003, the profit there would be 200%.
These stocks tend to move quickly in both directions and carry with them extreme market risk as many of the companies who have stocks at these levels are very early stage or can even have gone dark.
- Sub Penny Stocks
Though triple zero stocks are considered sub penny stocks, most of those who trade these will look for stocks trading between $0.001 and $0.0099. Similar to triple zero stocks, these sub penny stocks can see exponential gains on relatively smaller moves in price. The allure is similar but in some cases, for whatever reason, stocks trading in this range can catch fire, quickly, and many times can run up even larger than those trading in the triple zero range.
- Penny Stocks Under Ten Cents
These are typically looked at as “safer” than any of the “sub penny stocks” believe it or not. Companies that trade at $0.01 or higher (in general) will qualify for a chance to be reported on by a higher tier of the Over-The-Counter Exchange or OTCMarkets.
The reason being that a company’s stock must hold a bid price at or above $0.01 for a certain period of time in order to be regarded as a stock to put on a higher tier. It also opens the door for better reporting specifics, which also helps to attract a different group of investors.
Unlike stocks that trade over $0.10, these stocks still carry with them the “small move, big gain” potential. Basically if a $0.01 stock jumps to $0.03, you’ve got yourself a 200% gain with just a 2 cent move. If shares of Apple only moved up by 2 cents, there’s basically zero gain on that move.
- Stocks Trading Above 10 Cents
This is a wide range but generally speaking, these kinds of companies with stock prices trading above 10 cents or even trading between $0.50 and $1 have more to look at than just volume metrics and technical indicators. This is Generally Speaking because there are obvious exceptions to this. Just like penny stocks in any price range, the allure is that small moves in price can equate to much larger gains and in a shorter time frame than, say, a 5 year investment into a blue chip stock.