The Risk & Rewards Associated With Penny Stock Trading

Timothy Sykes, 37, is a travel addict and a millionaire with a lot of money to spend, but that was not always the case. The stock trader and teacher, who is based in Miami Beach but calls himself “homeless”, has built an empire from a few thousand dollars and is now dedicated to showing others how to live a similar lifestyle. 

According to the Celebrity Net Worth site, Sykes has a personal estate of $15 million (€ 13.3 million), which he has forged with his own effort. He has earned the nickname of “Instagram Wolf” (inspired by Jordan Belfort, the “Wolf of Wall Street”) because through the social network he shares with the world photos of his super luxurious lifestyle and his travels around the world.

In order to motivate others, Sykes’s Instagram account is filled with images of waddles of money, luxury cars, private jets, exotic locales, and beautiful women. He even removed $ 1 million from his bank account just to take pictures of it and then deposited it back into his account. Many photos of his travels show him with a laptop in his hand – even at the edge of waterfalls and cliffs. It shows how dedicated he is to “live the dream”.

Tim Sykes is currently a teacher and mentor to more than 6,000 students in more than 100 countries through his online trading academy and is also dedicated to charity work.

Over the years, Sykes has managed to turn $ 12,000 into $ 4.7 million while living the dream. An important part of Sykes’ income comes from his blog Timothysykes.com, where he teaches all his training programs. Forbes magazine estimates that the website generated in 2015 between $ 15 and $ 20 million (€ 13.3 and € 17.8 million), due to the multitude of users who visit it every day.

To find out whether Timothy Sykes is a scammer or not, visit Timothy Sykes Review – Scammer Or No?

What are the risks associated with penny stocks? Penny shares are attractive because they are cheap. Investors dream of finding that future Ford Motor or American Airlines and reaping the fruits of exponential growth. However, these low stock prices often come with considerable liabilities. Penny’s shares are highly volatile and lack adequate liquidity. This means that even if stock prices rise, investors may not be able to sell shares before prices fall again. The speculative nature of penny stocks requires due diligence and analysis to make the investment in these securities more than a pure bet.

How to reduce the risks of Penny Stocks?

One way to reduce the risk associated with improper disclosure of penny stocks is to choose from companies at the OTCQX level of over-the-counter medications. OTCQX has stricter financial standards for listed companies. These companies must comply with US securities laws and meet higher operating standards compared to the other two levels of OTC market: OTCQB and OTC Pink. Investors should be especially cautious with the companies listed in OTC Pink, as they are not required to submit an application to the SEC and, therefore, are not regulated.

To discover an investment in solid actions, one uses fundamental analysis to identify the factors that affect the company and assess the soundness of its operations. However, keep in mind that, with penny stocks, the lack of timely public information and relevant can make good fundamental analysis difficult.

Penny stocks: 

Features

Penny stocks are not held to the same accounting transparency as companies listed on the major regulated markets. While they may seem ideal for quick money-making, keep in mind that they have often fallen to this level after a mishap. It is, therefore, a high-risk investment.

Structurally, penny stocks have 3 characteristics.

  1. Lack of cash

Penny stocks are not very liquid. Low transaction volumes make it difficult to buy or sell. Order books can be blocked for days. This lack of liquidity opens the door to financial manipulations.

  1. The volatility of the courses

The courses are volatile. Due to the low price of the shares, an order of a few thousand dollars triggers proportionally a large transaction volume. As a result, large price fluctuations may be caused by transactions that would have no effect on highly capitalized securities.

  1. Important risk profile

This high volatility is associated with a significant risk profile. In a very small capitalization market, companies are born and die quickly. For the investor, assessing the likelihood of success or failure is difficult, as penny stocks are less followed by analysts as they are not required to make public their full financial results. Any positive or negative surprise can have a very important effect on the course.

Penny’s shares rise and fall based on demand for operations and, often, only vaguely related to the company’s fundamentals and balance sheet. It is often not possible to calculate the correct intrinsic value of a penny. Their prices are highly unpredictable and reflect the perceived potential over the real value. The level of disclosure of the company is, at best, mediocre and often non-existent. Stock trading in OTCQX requires regular and accurate disclosure of the company’s fundamentals. Investors wishing to trade with penny stocks should adhere to the OTCQX market and use the financial index analysis to mitigate the risks.

Investing in penny stocks can be extremely risky and certainly not for everyone. If you feel that you understand the risks and are ready to continue, the first step is to find a broker, finance an account and find an appropriate business candidate. Securities valuators are probably your best choice for restricting the universe of stocks so that you can find one that respects your trading style and your tolerance for risk.