Investing in Penny Stocks as a Financial Safety Net

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Creating an investment strategy that works for you and provides the returns that you require is all about understanding how the market actually functions. Stock commodities and the market that they trade on are driven by momentum, speculation, and social and political capital. This means that investors have to synthesize a wide range of data points and pieces of information in order to make good investment decisions that will galvanize excellent growth over the long term.

One important asset that many traders incorporate into their holdings is the penny stock.

Penny options on the Nasdaq or NYSE stock exchanges are those with share price points that rest around the $1 mark—hence the name “penny stock.” While many people might have a negative impression of penny stock investing (like scammers trying to sell a pump and dump scheme inspired by “The Wolf of Wall Street” or “Boiler Room”), the truth is that penny stocks offer real upside potential to investors who are willing to put in the work to find legitimate winners. The draw of a penny stock buy is that these are companies resting on the precipice of intense price movement. While many small and microcap companies will never expand to larger designations, some are simply a patent or product launch away from explosive growth.

Every massive company in the world started out as an idea and a corresponding tiny start-up, and this reality is the driving force behind the move to invest in penny stock commodities. Breakout companies are a fantastic investment opportunity; the challenge is in identifying a stock that boasts an incredibly undervalued share price before it arrives at this breakout and sees massive price growth.

Penny Stock Fundamentals

Many people think back on the GameStop explosion and wish they had seen it coming. The truth about stock movement like this is a bit more complicated than routine penny stock purchases. The GameStop movement was built upon a short squeeze that was artificially created by social media momentum rather than actual corporate fundamentals—this is why the stock has returned to obscurity in the months since its historic run. With thousands of individuals investing in the stock right as a raft of institutional investment firms’ short-sell options were set to expire, the price began to rise as a result of the increased demand that was seen within the marketplace. This caused the fund managers to abandon their investments, skyrocketing the price.

Penny stock companies don’t typically work like this, so removing the GameStop model from your vocabulary is essential for those looking to utilize penny stock options and other small companies as a mechanism for gaining long-running successes in the NYSE. Penny stocks enjoy unique volatility. This means that a price spread of a few percentage points may dot the price chart for a single day rather than the minuscule movement (in terms of percentage) within larger companies. Day trading within these U.S. securities provides astute technical analyzers with an open field that’s just waiting for intense growth.

Research and the Penny Stock

Many investors spend hours poring over small companies’ data and earnings reports in order to find opportunities for large growth looking just over the horizon. This is really where penny stock investors shine: in the minutia and research that underpins any strategic purchase within the penny stock space.

If you’re considering a move into this NYSE sector, make sure you’re prepared for long days filled with research and more than a few duds. Yet a penny stock remains a massive winner when you manage to pick one correctly. Utilize a diverse portfolio of assets and select small companies based on a preset list of criteria and you may just find the next whale before the market sees its potential and jumps.

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The articles are written by the staff of NationalViews