Novice traders are dreaming of fast money, and for that reason they often bet on penny stocks rather than traditional stocks. The rationale behind this choice is pretty clear – penny stocks apparently have the potential to easily multiply their current price. However, there is an equal probability that the share price of nimble companies would collapse. Starting with a small deposit to take advantage of the infinitesimal prices of penny stocks is not the smartest approach, even if traders tend to wish for it.
Meir Barak, founder of day trading school Tradenet, has watched many newbie traders trying to hit the jackpot with penny stocks. He knows from experience how challenging it is and he wants to help traders avoid making the same mistakes. It is true that there are no risk-free rewarding opportunities, but when you have to pick between better and worse alternatives, why not making the right choice?
According to Mr. Barak, author of “The Market Whisperer” bestseller, day trading doesn’t work with penny stocks because of several reasons. Here are only a few of them:
- Typically, penny stocks are not traded on top public stock exchanges like regular company shares. For traders, it means that the companies behind such stocks are less transparent, as they are not obliged to disclose their financial information to the public. Thus, one can hardly find out whether a given penny stock is indeed a good investment.
- Penny stocks are prone to pump and dump schemes, in which the small companies are heavily promoted through multiple social media channels to attract more traders. Once the price is artificially inflated based on a delusive demand, the guys at the top are selling the penny stocks en masse and record generous profits at the expense of naive traders.
- Penny stocks are far more volatile than regular stocks, and there are well-known issues with liquidity, making it hard for traders to sell their penny stocks at the right time, or face very wide spreads.
Instead of risking your money for hazardous and speculative investments, isn’t it wiser to follow the paths that had been already proven to be effective? As an alternative, traders can try funded trading account programs, such as the ones made eligible to apply as part of trading education packages offered by Tradenet. A funded trading account is a method that helps traders learn how to trade for free.
Traders should look for accounts with higher buying power that would provide greater profits for the same percentage gains. The good news is that there are investment firms who offer funded accounts, in which traders have to share a small portion of their profits. Barak’s Tradenet also endorses this practice, as it makes its students eligible to aplly to funded account providers through its educational packages. This approach is less risky also because traders are not putting their own money at stake.
Those who get access to a funded account can trade high-value stocks like Apple and Tesla among others. This would make more sense than taking unnecessary risks with penny stocks. Unlike the share price of small companies, regular stocks react quite predictable to relevant news or any fundamental data.
Barak stated via his YouTube Trading channel:
“Most of my students fund their own trading accounts. However, many others are left behind because they either don’t have enough money or are too afraid to take the risk. On the other hand, there are several investment firms that are looking to find traders who would be willing to trade from home and share their profits,” he explained.