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Before you begin on what may be a fast-paced, highly volatile endeavor, you must make sure that you properly 'learn the ropes.' Going in without the proper preparation would be a mistake, especially since everything you need is right here in front of you.
So what are the ropes? What do you need to know about penny stocks before you dive in?
I have identified five areas that all new investors should understand.
The 5 Ropes of Penny Stocks
As we have already mentioned, penny stock investing has its own language. You should learn this, as well as the basic investing-talk that applies to all stocks. Browse our glossary before you begin, then continue to reference it for any term you are not confident about.
For every trade, certain details will be required of you. For example, you will need to know if you are buying or selling, the ticker symbol of the stock (and perhaps the name of the company), the market the stock trades on, and several other points. These requirements are explained in full in the section on buying penny stocks.
To truly have clarity of what may be ahead for your penny stock investments, you need to know what has happened before.
In general, penny stock trading is just a handful of different scenarios that play out again and again over the generations. Anyone who tells you that old economy rules do not apply to new economy stocks is mistaken. Review the section on past penny stock trends to learn more.
Going forward without looking back dooms you to mistakes that have already been made a thousand times.
There will be differences in the coming years and decades, which will not mimic the past. For example, we expect penny stock investments to become more mainstream, and to begin to shed many of the negative connotations that surround them. Better investor protection methods, as well as more access to information on the underlying companies, will help this transition along.
I present a few personal opinions of what may be to come in one of the bonus sections, called Penny Stock Prophecies.
I also expect that no matter how much the game changes, people will still get burned by greed more than any other factor.
You must understand how a trade happens. Besides your part in the scenario, you should also learn how the exchanges work, what is going on behind the scenes, and how one person's profit is often another person's loss. All of this information is provided in the upcoming sections.