Penny stocks are hot right now: online scamming has been scratched out, discount stock brokers are revealing more information, and people are talking about large profits made. Suddenly, everyone has become a penny stock insider. Whether you are just getting into penny stock trading or have been at it for a while, tips are always welcome. Yet, how do you know whether to trust a penny stock insider or not?
There are two basic types of penny stock insider tips. The first I like to call, “the water cooler tip.” This is the information that you get while chatting with your coworkers. Once this so-called penny stock insider makes a claim about a hot buy, the advice is already spreading like a virus. It is easy to believe these insider tips because they are usually so well intended. However, that doesn’t make your colleague a professional penny stock broker. In fact, many penny stock insider tips are more told for bragging rights. A colleague freely gives his advice just to sound knowledgeable. Most of the time, he or she is just repeating something heard elsewhere or read at an unreliable site. There is an easy way to weed out the real and fake penny stock insider tips. Ask these questions:
1. What is the company and how are its revenues?
2. Does the company have any debt?
3. How many shares are there and at what cost?
4. How does the competition compare?
A good penny stock insider will know the answer to all these questions.
The next type of penny stock insider is a professional broker or analyst. Since most trading of penny stocks is done online, that is probably where you are getting your information. I think we all know not to believe everything we read online but there are some certain warning signs. If a penny stock insider is predicting exact prices, it is probably a promoter. Most of these promoters real in investors just to inflate the price of the stock. Price guarantees are illegal and you shouldn’t trust an insider giving them! However, many online brokers really do have your best interests at heart- because they want to make a profit off of you! If your online broker is also your penny stock insider, simply ask the same questions listed above. Of course, you always want to use a professional penny stock broker and never trust anyone offering their services for free.