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Trading Penny Stocks: Your Gateway to Profits?

With the unprecedented rebound the stock market experienced in 2009, many who were previously afraid to look at their 401k statements, are now itching to get in on the profits they see made. Even while some seem cautious to put any of their own money into stocks just yet, a select few want to be a part of the next wave higher.

Many retail investors, or independent investors, usually prefer to stick with what are referred to as penny stocks. This is mainly due to their ability to produce exponential gains for their stockholders, often over a short period. There are a couple things to be careful of before unloading your savings into one of these small companies.

Choosing the right stock can be difficult, as most of these companies that trade below a dollar a share have very little information available on them. Research can be your ally in this case. Look up the sector that the company is a part of, and be on the watch for anything that is new or innovative in their product line.

New products catch the eye of larger companies that may be interested in buying the smaller company to take its product line as their own. This is what you are hoping for when investing in penny stocks.
Another point to consider before investing is your costs when trading penny stocks. With so many online brokers available, you really have the advantage when choosing one with which to trade. Go with a broker that is well known and has low commissions.

High commissions can eat away at whatever profit you turn on your investment, so make sure you are satisfied with what your broker offers. In addition, it is important to be aware that just about all brokers will charge a small fee for buying penny stocks. Many brokers even put a fee on all stocks that are below $2.50, often at a rate of $.001 per share. While that may not seem as much, it can also eat into your profit along with whatever commissions you are paying.

Considering these thoughts before jumping into the first company you see will save you a lot of heartache. Penny stock trading can be as dangerous as it can be profitable. When you finally lock in on an up and coming star of a penny stock, you will have opened the gateway to profits.

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