Penny Stocks are one of the most trending items to add in your investment portfolio. The penny stocks are an alluring and enticing item of trading for first-time investors because of their low trading prices. Trading penny stocks are still in rage on the Singapore stock exchange.
The Singapore Stock Exchange is the good marketplace for buying and selling of these penny stocks. For all the first time investors who want to start building their fortune trading in penny stock is a good way of start making money. Trading in penny stocks also helps in diversifying investment portfolio.
To understand how to trade penny stocks in let us first know:
What are Penny Stocks?
Penny stocks are common stocks of leading companies that are traded on the Singapore stock exchange. The price of these stocks is usually less than $5.00 while in Singapore these stocks are traded in cents usually amounting to less than 20 cents.
Trading of penny stocks usually refer to trading of shares of new companies or companies with low net worth i.e. trading of stocks of companies that are unstable in their performance. Investment in penny stocks is for investors who possess high risk appetite as the investors dealing with penny stocks usually encounter high volatility stocks.
Following are the most unconventional features that every penny stock investorshould take into consideration before trading them on the Singapore stock exchange:
Penny stocks have a higher volatility degree associated while trading them. This volatility is related to price so in some cases the trading might earn a huge profit while in some transaction you might face a loss. Thus as the price volatility is very high while trading penny stocks so it makes trading them a riskier investment.
The price volatility is seen because penny stocks face lower liquidity. The reason behind low liquidity of penny stocks is that there is a high risk factor associated with it so there are very few who trade in them. Low liquidity makes it tough for the investor to sell penny stocks at a favorable price as there are few buyers of penny stocks.
Penny stocks are the shares of relatively smaller and new companies so investors often consider them unreliable. Investors usually consider big sized companies having multi-million dollar turnover companies as reliable ones. But on the other hand as the reputation of newer companies is yet unknown so the penny stocks of these companies are not considered trustworthy.
As penny stocks are low in prices so they are often subject to high speculation by the market speculators. Penny stocks are often targeted because of its low price as it is one of the most preferred investment tool opted by investors. But remember do not get fooled by such market speculators as they falsely inflate the prices of penny stocks and often misguide the investors.
Thus penny stocks are for investors who have a high appetite for risk so opt for trading in penny stocks if you have a higher tolerance for price volatility and can closely follow the precautions associated with trading penny stocks.
Now that you have known penny stocks and its characteristics let us understand how to start trading penny stocks in Singapore stock exchange as it is an obvious place to do trading.
Following is a complete step-by-step guide to help you understand how to master trading in penny stocks:
Understanding Penny Stocking
The first step to master trading of penny stocks is to understand how to start trading and investing
. While trading penny stocks you will often come across a term called penny stocking. Penny stocking is related to the trade of penny stocks i.e. buy, selling or short selling of penny stocks is referred as penny stocking. Penny stocking involves understanding with time and knowledge the best time to invest or sell off penny stock.
Penny stocking involves trading of stocks of less known companies but it is advantageous for following reasons:
- The trade is simple and quick
- You learn trading in stock market quickly and efficiently
- Best teacher as you learn the trade from your own decisions
- Investment is on small scale so if you lose then it’s usually not a very big amount and your earnings grow over the time
Setting up clear trading objectives
Even before starting to invest or trade in penny stocks it is important to sync your expectations with the corresponding risk involved in trading penny stocks. Investing or trading in penny stock is for people who have high risk tolerance and expect higher returns. That being said, if you are not a person of high risk tolerance then it is recommended that you should rethink about investing in penny stocks or set up clear objectives and parameters when you trade penny stock in SGX. So set up boundaries as per your risk appetite and stick to it while trading with penny stocks.
Steps to start penny stocking
The first step to start trading of penny stock is by opening a brokerage account. Having a trading account with an approved dealer helps you to trade penny stock in SGX.
Following is a list of some of the most popular authorized stock broking firms in Singapore:
- Standard Chartered
- DBS Vickers
- Maybank Kim Eng
- Phillips Securities
The next step is to open a Central Depository Account (CDP). A CDP account is like a vault that stores all the penny stock on Singapore stock exchange. The most important benefit of opening a CDP account is that you can easily change your broking firm without worrying about your stocks as they are held by CDP account and not by the broking firm.
Understanding numerous trading instruments
It is very safe to assume that every stock exchange you pick is buzzing with various financial tools and instruments that offer various investment options to the investors beyond penny stocks. The list of investment instruments traded is endless and it includes a variety of instruments like penny stocks, bonds, real estate investment trusts (REITS), exchange traded funds (ETFs), warrants, daily leveraged certificates (DLCs) etc. Thus it is very important to understand the features, benefits, and risks associated with each and every investment instrument before trading them on SGX.
Planning a trading strategy
Once you have decided to trade penny stocks then the next step is to plan a trading strategy
. Being a new investor and new to trading in penny stocks can be an overwhelming experience. The first step in successful trading a penny stock in Singapore Stock Exchange is that you set small and realistic goals for yourself. Having a trading strategy is very important as it helps you to keep a focus on your financial goals. So remember that you have a full-proof trading strategy ready even before you start trading in penny stocks.
Nitty-gritty of penny stocking
Before you start trading in penny stocks understand the fundamental information like terms associated with penny stocking like moving average, breakout, breakdown, resistance etc. another most important aspect of penny stocking is that you must also analyze penny stocks before investing in them. Analysis of penny stocks can be done in two ways namely technical analysis and fundamental analysis. Investors can use these analysis methods exclusively or in combination to pick their penny stock.
involves deciphering stock market signals
and predicting the movement of the stock while fundamental analysis involves the study of financial statements of the company namely the balance sheet, cash flow statement and income statement to determine the value of the penny stock.
Stalking your penny stocks helps to understand how the penny stock reacts to various positive and negative market indicators.
Stay Focused and Keep Calm
Trading penny stocks is an overwhelming affair as there is constant rise and fall in the prices of these stocks. In such a volatile situation the best thing is to stay focused and stick to your original trading strategy and keep calm irrespective of the market situation.
Review and Re-planning of investment strategy
Once you have made a trading strategy of penny stocks and have got familiar with trading penny stocks on Singapore stock exchange then it becomes easier for you to accumulate knowledge from past experiences and re-build new strategies. Trying out new strategies will help you in gaining knowledge and experience. You can then implement tried and tasted strategies like studying charts and chart patterns
to earn higher returns.
It is always good to try and implement new strategies but kindly note that these new strategies are in sync with your investment objectives. Following various chart patterns will help you in foreseeing market movement, what to buy and hold or what to sell.
Thus it is always better review your investment strategy as it helps in staying real and in sync with ones investment goals and objectives.
Remember, the best way to succeed in trading penny stock is by divorcing yourself from all the volatility associated with the stock exchange.
As a first time investor, the best advice is to be disciplined by sticking to your investment objectives and be consistent with your investments as it will help you in fetching long-term financial goals.