UNITED STATES—If you’re looking for a quick way to diversify your stock market portfolio, without spending a lot of extra cash, then you may be drawn to the potential of the penny trading industry. Although you don’t actually buy shares and securities for a penny in this environment as you might imagine, but you can purchase assets for a price as low as $5 or less. While this environment might seem fantastic for rookie investors that don’t have a great deal of cash to spend, the truth is that it’s actually better suited to experienced individuals with higher risk tolerance.

At first glance, finding penny stocks to watch might seem like the ideal way to sell shares for a substantial profit, when you’re only spending a few cents each time. The extremely low holding price of various low-cost stocks means that you can hold thousands of shares at once. At that scale, the gain on just a few dollars per share can quickly translate into huge returns. However, just as it’s possible to make money this way, you can easily lose it too.

Finding the Right Investment Opportunities

The crucial thing to remember about penny stocks is that they’re considered to be risky, complicated and highly speculative. With huge bid-ask spreads and a significant lack of liquidity, penny stocks can be a dangerous way to spend your money, particularly if you’re not used to the rapid changes in your chosen industry. Still, after a lot of time in the trading space, you may eventually feel as though you have enough knowledge for investment potential to get started in this area. If that’s the case, it’s important to keep a few golden rules in mind.

First of all, you should always look for investment opportunities on exchanges that are regulated to the highest standards. Major exchanges like NYSE and the Nasdaq are equipped with special listing requirements that prevent uncertain companies from listing on them. Although you can get much cheaper securities by heading to the over the counter bulletin boards, the listing requirements are also much lower, which puts you at greater risk.

It’s also a good idea to consider using a broker if you can. Stockbrokers will play an essential role in any kind of trading, providing the necessary infrastructure and guidance to help you spend your money and make cash effectively. Ensure that you pay close attention to the experience and fee structure of any broker that you’re thinking of using.

Knowledge is Power

Whenever you’re using stocks and securities to grow your wealth, the most important thing you can do is gather your research. The more you know about the industry that you’re spending in, and the businesses that you’re buying into, the better off you’ll be. Additionally, when it comes to penny stocks and shares, it’s always a good idea to understand that different brokerages and trading environments can end up presenting more risk than they’re worth. When you’re first exploring these unique environments, it’s better to be safe than sorry.