One of the most important things average Joes and Janes can do for their financial future is to put their money to work in the stock market…
And the good news is that technology is making it easier to open retail trading accounts for just about anyone who wants to. Charles Schwab announced it eclipsed the 5 million new account mark back in August — more than double the number of new accounts opened in 2020.
But it can be easy for newbies to be intimidated by trading traditional stocks and derivatives like options, and the terminology.
I mean, when FAANG stocks cost in the hundreds of dollars per share — or thousands in the case of Amazon.com Inc. (Nasdaq: AMZN) and Google parent Alphabet Inc. (Nasdaq: GOOGL) — it’s easy to think you have to be rich just to get in the game.
So when someone comes along promising unseemly returns investing just a couple hundred dollars trading stocks, it can be hard not to get sucked in by the allure of an easy payday.
But I’m here to call B.S.!
You’ll never catch me loading up on risk with penny stock bets, and it has nothing to do with the size of my account…
The Risks of Penny Stocks
For those who don’t know, a “penny stock” is a company with a market cap less than $250 million (microcap) that trades for less than $5 a share, and isn’t listed on a national stock exchange like the NYSE or Nasdaq.
Penny stocks are so inexpensive — and so volatile — that it is technically possible to leverage meager savings into a fat account in just a few years…
But the odds of blindly navigating the financial minefield of risky penny stocks is not good. For starters, these markets aren’t as tightly regulated — most penny stocks aren’t required to file with the SEC.
Many of these companies don’t have a viable business and rely on hype to drive their valuations…
And on top of it all, the stocks don’t have a track record, and most analysts don’t follow them. This makes the riskiest penny stocks difficult to research before buying, and ripe for scammers to sucker unsuspecting investors.
These are some of the many reasons why major institutional traders and fund managers aren’t allowed to touch companies trading under five dollars…
It’s just too speculative for the so-called “smart money.”
And if the pros aren’t putting their money to work risking trillions on penny stocks, we need to ask ourselves why should we risk our hard-earned cash?
Those funds have armies of analysts and traders with more degrees than a thermometer, and when you see them jump on a trade, you know it’s legit… The same can’t be said for risky penny stocks.
I’ve made a lot of money following institutional order flow and trading inexpensive options. It’s why I spend so much time keeping you up to date with what the big boys are trading in Blitz Daily, and with strategies like Daily Profits Challenge and Wiretap Trade Alerts.
Check out the video below and let’s talk about the risks of trading penny stocks. Don’t forget you can follow me @LanceIppolito on Twitter, Instagram and our YouTube channel for more trading insights and tips. And as always, you can find me right here talking stocks and options trading — and printing money — on WealthPress.com!
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