Penny stock guide Ch. 15-20

CHAPTER 15

HOW TO PICK A Penny Stock BROKER

Now, the question arises is HOW DO I PICK BROKER?

You should first decide whether you want a telephoning broker or he should be an online broker as well. Then next you should find the following factors.

  •   Quality of information
  •  How fast is the execution of trade
  •   The markets available
  •   Costs attached with them
  •   Check how much equities they would pay
  •   Would they provide with CFD’S
  •   How much fees would he charge on the unused cash in your trading account
  •   How much discounts. Penalties will be there on frequent /infrequent trading.

WHAT ARE THE QUESTIONS YOU WILL ASK DISCOUNT BROKERS

How much do they charge for buying and selling shares? Do they have any subscription fees How do they buy and sell shares Do they deal with telephone and internet both? Do they offer trade discounts Do they offer and added services like alerts, dynamic market data etc.

CHAPTER 16

GOLDEN RULES OF BUYING SHARES

9 golden rules of buying shares

1. STICK TO THE RULES- Always remember that the stock prices would go up and down, what is needed is to stick to your strategy which you have planned. Swaying away from the rules would only bring losses.

2. DIVERSIFY — Do not invest all your eggs in one basket; invest in various sectors not just the one which is mining.

3. BUY SHARES THAT SUIT YOUR TRADING CYCLES — if you are buying shares for a long term it definitely wont suit you if you are short term trader and it goes other way also… short term shares wont suit the long term trader as well.

4. KNOW YOUR RISK TOLERNACE — A speculative share has a different risk profile as to out of favor  ” blue chip “.Allocate your capital according to your own risk tolerance and the risk profile of the trade.

5. DON’T RUSH IN — The market will be still there waiting for you when you are ready to trade. Learn about the market before you start trading particularly the new investors. The best way to start is with the PAPER TRADE, so as to learn the basics first.

6. DO NOT GET GREEDY — Don’t think that you will be a millionaire in a day, be practical and not over realistic. Don’t think it’s very easy, as it’s very easy to lose money also in the trade market.

7. ONKY INVEST WHAT YOU CAN AFFORD TO LOSE — if the shares are the cause of your worries then definitely either you have invested in the wrong ones, or you have far too many to handle, so SELL them , nothing in the world d is more important than your peace of mind.

8. NEVER EVER CHASE SHARES — exercise patience, never run behind the shares and purchase beyond your limits, because the time will definitely come when you will be able to buy them within your limits.

9. KEEP ACCURATE UP TO DATE RECORDS- The most important of all, for penalties for not declaring your profits and not paying the capital gains are too much high. So stick to the rules.

CHAPTER 17

STOCK MARKET INVESTING TIPS

What should you do to be successful in the stock market, may be the following tips would help you

HAVE A PLAN

If you want your money to grow, wealth to multiply then the first thing you need is a full proof and solid strategy plan. If your plan is not good then you would just end up fixing your errors.

INVEST REGULARLY

Investment in shares is not a onetime game. You should keep on investing if you want to yield good profits.

LOW COSTS

Frequent trading would definitely add up to costs. Certain fees are always there which you need to pay, but do not indulge yourself into counterproductive things, which ultimately would make you use up your profits too. Best is to stick to the basic low cost transactions.

DO NOT BUY TOO MUCH AT ONCE

Try to buy at a certain amount and a certain period of time, which will give you advantaged of best prices. Hence if you want to invest to do not invest at a time, do it over a time frame of days, weeks or months.

DIVERSIFY

It’s the most important and vital thing to diversify as it would help to minimize the risk. All the types of investment, goes thought the cycle of setbacks ups and downs… hence you should diversify to earn profits in long term.

DO YOUR REASERCH

Before you decide to invest choose the right industry and in that choose the correct company. It would take a little bit of time but, do your homework properly before investing because it’s ultimately your hard earned money you want to invest for betterment.

NO EMOTIONS

The most basic thing of investment is, you have to keep emotions aside what it needs is cool, calm and balanced mind.

KNOW YOURSELF

You should now yourself about the market as well as which stock is good, if you are not able to do that than its always advised to have a professional do it for you .yes, we definitely talked that we should keep our costs low, but in this respect it’s always good to have someone manage your trade if you are ignorant about it,

CHAPTER 18

DIFFERENCE BETWEEN STOCKS AND SHARES

For the first time investors it is difficult to decide where to invest his money .which option to select and when all the information seems to be confusing. In that the most common question asked is what the difference between STOCKS and SHARES is.

In today’s financial market, the distinction between the both is somewhat blurred, however

STOCKS mean ownership of certificates in multiple companies. You may not be only the stockholder but also the shareholder for each particular company as well.

SHARES mean ownership of certificates in a certain company. It makes the person the shareholder of that company.

The common misconception about stocks and shares is that they are different things. In reality they are the same thing but are referred to differently when talking about more than one company.

DIFFERENCE BETWEEN STOCKS AND BONDS

Sometimes it’s difficult for the new investor to differentiate the difference between the two. If I must say so, there are people who have been investing for a long time, but still they have not been able to articulate the difference. People think that stocks are more riskier then bonds and basically it is true also,

STOCK means ownership of certificates in multiple companies. The price to the stocks will actually depend upon the performance of the company. If company is doing well you will share the appreciation, but if the company has gone in loss, then u will equally be sharing the loss.

BONDS are “credit “given by the investor to the company. It’s a kind of loan provided to the company to carry on their activities. The percentage the investor gets is fixed.

The shareholder would stick to the shares even in bad times and would expect that the company would do better in future, but the bondholder is just concerned with his initial amount and the interest from the company.

It is possible that investor has invested in a small and a risky company and if the company shuts down then the bond holder has to lose his initial investment as well, but this happens in a rear case.

So what would be a wise investment BONDS OR STOCKS?

Well. It depends on the person personal decisions and what is his risk tolerance. Though the ideal long term portfolio could be a blend of little bit of both.

CHAPTER 19

FUNDAMENTAL ANALYSIS

It is always been a difficult and a confusing decision as to which stocks to buy. The financial analysts heavily depend to the Fundamental analysis at that time.

Fundamental analysis is looking at the basic or the fundamental financial level. It helps as key to determine the company’s health and gives the idea of the value of its stock. Fundamental analysis is the cornerstone of investing. Its core objective is to do the financial forecast of the company

To conduct companies stock evaluation

To make projections about its business performance

To evaluate its management

To calculate its credit risks.

TECHINCAL ANALYSIS

Technical analysis forecasts the future directions of the prices, through past data and market trend. It ‘ignores’ the actual financial condition of the company, market currency, it just solely goes by the “charts “that is the price and volume information only. It is just not limited to charting but it also considers price trends.

Technical analysts believe that the investors collectively repeat the behaviors of the investors who preceded them. While it will take long time for the technical analyst to be picked as the one to manage your trade, but certain financial institutions and banks are using them as tools.

CHAPTER 20

FAQ ‘S

If I buy, when should I sell?

Stock market is a creature in and of itself. When will the bull market is going to change to bear market is anyone’s guess. Hence, we should hold the shares which are stable and are moving up. When you see the company’s shares you have taken are dropping, dipping continuously, then I guess it is time to abandon the ship from those share, meaning it would be wise to sell those shares which are falling in price.

How many shares should I hold?

If they are fewer the better it is good to be diversified, but you should hold that many share that you can manage, and handle on your own. What is the point of holding 1000 shares and If you cannot know them all… instead it’s better to have 25- 30 which are manageable.

How can I buy and sell my shares tax efficiently?

You will be able to do this inside a self select Isa

Most of the brokers provide you with this facility where they give you an empty Isa wrapper. You have to fill it pound 7000 worth of shares and then trade tax free. All capital gains you make will be tax free.

What are Penny stocks?

There is no set accepted definition for the Penny Stock. Some define it as stock priced under 1$ and some say 5$. They are actually type of stock that generally trades at very low value and market capitalization. They are highly speculative and have high risk due to lack of liquidity. They are generally traded over the counter (OTC) and on pink sheets.

What is buying on margin?

A risky technique where in you are buying stocks with borrowed money from the broker. You can term it as a loan from the broker to buy the stocks. In this it allows the investor to be paid the fractional amount and the rest in borrowed from the broker. The broker sets a margin account with you and also charges you with brokerage on the loan and you have to pay interest as well. They can also hold the shares as collateral against the loan you have taken and can take the stocks, if you become a defaulter.

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