2020 has been a great year for small stocks.
Some of them were up more than 80 percent in a week.
Lou Basenese is a trading expert who specializes in finding these kinds of massive gains on small stocks.
He told us about a trade he found back in March. He recommended his readers get into Inovio (INO), a small pharmaceutical company trading under $8.00 per share.
Just a few months later, shares had climbed to over $30!
Now, some people immediately associate small stocks with speculative trades and even fraud.
If you watched the brilliant performance of Leonardo Di Caprio in the movie The Wolf of Wall Street you know what we are talking about.
The truth, however, is that there are many small stocks that offer huge potential for gains.
They can be riskier than traditional stocks, yes, but if you know how to pick them right and have knowledge about how to navigate in this market, the opportunities are worth the risk.
All trading involves substantial risk of loss.
But even with small stocks, there are always strategies to manage and minimize risks in any kind of investment.
What are small stocks?
Small stocks are cheap stocks.
You may hear these kinds of stocks referred to as “penny” stocks, but we are avoiding that word because it has a lot of unnecessary baggage tied to it.
People are afraid of “penny” stocks, but they don’t have to be.
According to the Securities Exchange Commission (SEC) definition, a small stock is any security issued by a very small company that trades at less than $5 per share.
They can be traded on security exchanges and also on the OTC markets.
Over-the-counter, or OTC, refers to the process of how securities are traded for companies not listed on a formal exchange.
Broker-dealers licensed and regulated by the SEC can buy and sell these securities for their clients.
Retail brokerage houses, investment companies, banks, and individuals can be licensed broker-dealers.
They play the role of market makers for OTC stocks, generating liquidity to these securities.
Since they are cheap, it is not necessary to have a lot of capital to start investing in small stocks.
The low price can also allow you to build a specific portfolio with these kinds of securities, which means you can diversify within this same portfolio.
A type of diversification within the diversification considering all your assets.
Small stocks also offer many opportunities for gains because of their high volatility.
Behind small stocks are small companies unknown to the general public, but that are great firms with huge potential and breakthrough products or services.
Actually, this is the dream of any investor: catch an unknown star before it starts to shine.
But that’s actually the wrong goal.
Sure, maybe you could find the next Apple, the next Amazon, or the next Tesla.
But the real genius small stock traders recognize that these investments make modest moves all the time.
And if you buy shares of a stock for under a dollar, and it climbs to $5.00, that’s still a massive gain in your account, even if it’s not the next Amazon.
Small stocks can be risky if you don’t know how this market works, or if you make speculative trades.
They can offer big gains, yes, but before jumping on them, inexperienced investors must be humble and learn the characteristics of this peculiar market.
Since most of the companies that issue these kinds of securities are small and relatively new, they don’t have a solid track record to offer.
It is not very easy to find available information about them.
So it is essential to be very careful which small stocks you trade and practice technical analysis to the best of your abilities.
In the case of the small stocks traded OTC, they are even less transparent. Since they are not listed companies, they don’t have to follow the strict financial requirements required by major stock exchanges.
OTC small stocks also offer less liquidity.
Small stocks can be highly volatile. As we pointed out here this can be an advantage since volatility offers many opportunities for gains, but there is an associated risk if the investor doesn’t have the necessary skills.
Learn More About Small Stock Trading
As you can see, small stocks have a huge potential to generate massive profits in a short period of time, but they are tricky if you don’t have experience.
It requires specific knowledge and a sophisticated understanding of how small stocks work to pick and trade them managing their risks at the same time.
This is why Rob Booker joined master trader Lou Basenese, who worked at Morgan Stanley and with upstarts companies from Silicon Valley, to share a strategy built specifically to trade small stocks with the potential for explosive growth.
And they’ve identified five small stock “catalysts,” reasons that a company is about to boom, that they want to share with you.
Rob and Lou will cover it all on Wednesday, October 14th, at 1pm ET.
And you can learn more about it for free, just register here.