Day Trading Penny Stocks - Is It Right For You?

Day trading penny stocks is basically buying and selling shares of stock in a very small window ranging from a few minutes to a couple of hours. These traders look for certain patterns in the stock charts and once the pattern is in play, they place a trade and exit once they think the pattern is beginning to reverse. The key to becoming a good trader is the ability to make decisions during periods of high stress. This is definitely not a profession for the faint-hearted. If you have a tendency to gamble or are not able to keep your emotions under control, you should absolutely avoid day trading. There are less stressful ways to invest your money.

Why do people love day trading then? The thrill of earning a quick buck fast is very addictive. Thats what entices people to trading in the first place. There is a lot of flexibility since these days you can trade from the comfort of your home sitting in your pajamas. No commute, no traffic, no annoying coworkers... Whats not to love?

Day trading penny stocks is one of the most popular forms of investments in the market today for many reasons. For one thing, the wide range of companies issuing these shares makes for plenty of opportunities to expand the investment portfolio from penny stocks to blue-chip shares. There are literally thousands of companies listed in the mainstream Big Boards like the New York Stock Exchange, the London Stock Exchange and the Nasdaq as well as in the lesser-known OTC Bulletin Board and Pink Sheets.

You can also earn profits in day trading by shorting stocks. Here's how it works. When you are anticipating a decrease in the price of the shares, you are short selling the stocks. You don't own the shares per se but these securities are promised for delivery in the near future.

But who owns the stock? Actually, your stockbroker will lend the shares to you with said stocks coming from the brokerage firm's own inventory. These shares are then sold to other traders with the proceeds credited to your account with the brokerage firm. But take note that you should close the short - buy back the same number of shares and then return them to the stockbroker.

So, where do the profits (and losses, too) from day trading penny stocks while shorting them come in? If the share value drops, you will buy back the shares at their lower price with the profit represented by the difference. If the share value increases, then you lost money.

Keep in mind, however, that your profits will be deducted of the dividends and other rights declared during the loan. For example, if the borrowed shares undergo a stock split, you must then pay twice the number of shares albeit at half the price.

Yet another thing to keep in mind about day trading stocks through the stock market is the restrictions placed by the Securities and Exchange Commission on the activity. Day traders must deposit at least $25,000 in cash or its equivalent in securities with the brokerage company handling their accounts. If you can pit up with that amount of assets, then day trading may your new wealth builder.

All that being said, day trading is financially very risky and a very draining emotional roller coaster ride. If you are courageous enough to venture down this path, please do so with limited capital in the beginning and view this purely as a learning experience. Better yet, if you can learn day trading while interning with a firm or working as an apprentice it is a great (and possibly a lot more inexpensive) way to learn more about this profession.