Why Cash is Your Best Asset with Penny Stocks
When you start your Penny stocks trading career you first need
to decide how much you are willing to invest. You need to
remember that this is not a "sure-fire" income opportunity and
that it is possible that you may lose everything, so be sure to
not to invest more than you can afford to lose.
That said when you have decided on an monetary amount, whether
it is $100 or $10,000 you should avoid the temptation to put all
of it into one or more Penny stocks. But why you ask? Surely the
whole point of putting the money into your stock broking account
in the first place is to invest it.
Well yes and no. . . if you have all of your funds invested at
the same time then you lose a lot in flexibility. You have few
options when faced with the need to respond to a rapidly rising
market. Or to profit form a newly acquired piece of information
that one or more penny stocks are about to move upwards.
If you have invested all of you cash and your present portfolio
is flat, the only way to buy into rising penny stocks market and
get a piece of the action is to either. Use "your own money",
for example money that is not part of your penny stocks
investment fund (and is not money that you can afford to lose) a
very bad idea. Or to get on the phone to your broker and see if
can sell some of your existing shares so that you can buy into
the rising penny stocks.
The first is obviously not really a good thing to do and is more
akin to gambling than investment. After all if you couldn't make
a profit with the first group of penny stocks, why do think you
could with the second. A more likely scenario is that you are
throwing good money after bad, except that this time it is not
money that you can afford to lose.
The second, though more sensible than the first, is not really
what trading penny stocks is all about. The whole point is to be
able to buy quickly if you think that a stock is about to rise.
T sell quickly, as well, when the market seems to have to have
peaked for your penny stocks, so that you can maximize your
profit and sell before the market starts to fall.
If you keep a portion of your assets as liquid in your stock
broking account, then you have the flexibility to move quickly
as the market conditions dictate. A penny stocks trader without
the ability to move quickly is likely to be missing out on many
lucrative trades. By keeping around a third of your investment
fund as cash allows you to buy into a rising market without
having to rush into selling any penny stocks that may be under
performing at that time.
That way you get to benefit from the rising penny stocks but can
also hold onto the non performing or flat ones until they start
to rise or you have decided that you need to cut your loses and
get rid of them. Either way the point is that you are not rushed
into a decision and can decide based on research and
rationality, rather than a need for quick cash to fund your next
investment.
The ability to move quickly in response to rapidly rising penny
stocks can greatly affect your potential for profits in this
most volatile of the financial markets. Keeping a portion of
your penny stocks fund liquid will help you to achieve
profitability and make the success of your investing venture
into the world of penny stocks trading more likely to be a
profitable one.