Margin account investing is a great way to really amp up the earnings of your portfolio without actually having to put more of your own money in.  You can borrow up to 70% of the value of an investing in a stock which means you only need to put up 30 cents on the dollar.  Of course there is added risk that naturally comes along with added reward but if you’re interest is piqued read the following on Margin Accounts.

What Is A Margin Account?

Margin accounts are setup to allow clients to buy and sell stocks on credit and requires them to pay part of the full transaction price.  The brokerage firm the client uses lends the remaining capital to the client and charges interest on the loan to the client.  The client is expecting to make much more money than the interest charged out on it, and therefore a little interest is not a deterrent for the added service the firm provides.

The word margin itself refers to the amount of money that the client herself has to put up.  The remaining amount is the loan provided by the brokerage firm.  There are two types of margin positions that can be taken by an investor; long margin positions and short margin positions.

Margin Positions

A long margin position is when the investor buys a stock using only a portion of their own money and borrowing the remaining amount from the broker.  There are specific levels of money that a brokerage firm is willing to loan out which is based on the selling price of the security.  Each quarter there is a document produced that lists the stock eligible for reduced margin.  These are generally stocks that have less risk and very liquid as such, they require you to only put up 30% of the total investment.  The following is a list of those percentages:

Taking a short position in a stock is selling a position in a stock that you don’t currently own.  This type of transaction is executed on the belief that the price of a stock is going to fall.  The terms of margin are the opposite when taking a short margin position because you are actually lending money to the brokerage firm because you technically sold a stock to them and they are paying you the proceeds.  To cover the risk in this situation though the client must put up more than the total value of the short sale.  The following is a list of the maximum loan values for short positions:

Margin Call

When the margined stock is purchased the account must maintain sufficient funds to cover the position value. The brokerage firm lends you money but you are also provided with the stock so the full value of the investment is contained within your portfolio.  However if the price of the stock goes down your investment total will be less than the loan amount.  In this case a margin call will be triggered.

Example Of A Margin Call

In the example shown above you would need to fund the account with an additional $70.30 immediately or have the position liquidated automatically by the brokerage firm.  That’s not something you want to have happen so it’s important to keep a good amount of money in your margin account and try not to come too close to the limits.

Using other peoples’ money to invest can lead to a rapid increase in profits but comes at an increased risk.  When using leverage always take care ensuring that your account won’t come anywhere near a margin call.  That type of situation could result in significant losses as the use of leverage amplifies the loss.  Although many penny stocks don’t use margin, there are still some junior companies that would be eligible in the sub $5 range that could be traded in a margin account.

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So let’s talk about risk.

There are different kinds of risk when investing in the stock market. Some you can control and some you cannot. Investing in penny stocks is certainly a risky thing to do. However, as we’ve seen, investing in the overall market (index fund) can be fraught with risk as well.

In general small cap stocks are much riskier than a stable growing market, but in uncertain times they could present opportunities for growth where larger cap stocks are stock following the trend. This isn’t going to be a generalization, however many penny stocks are poorly corelated with index performance. So the overall market risk isn’t at play as much in a smaller cap company than the bigger ones with significant weightings in index funds.

Don’t get me wrong though penny stocks are risky! Their risk however would be evaluated differently than large cap companies.

#1 risk you can control is yourself and your money. You are the only one who determines the exposure you have to the market and individual stocks so your due diligence is always required!

Technorati Tags: Investing, penny stocks, risk

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This blog may be about penny stocks but penny stock investing is not right for every type of investor. That being said, it may be worth more consideration than they are usually given credit for. If you’re new to the idea of penny stocks, they are basically stocks with low market capitalization that are mostly considered speculative (aka: big gambles). There’s a lot of risk and a lot of reward. Penny stock are considered by some to be junk stocks and are full of cheats and liars. This is no more true than any stock trading out there today, and understanding the risks and opportunities will help in avoiding the junk and finding the gems.

Who should invest in penny stocks?
- If you have an iron stomach and are not afraid of risk.
- If you’re young and have money you’re willing to lose.
- If you have a substantial net worth that would permit you to take outsized risks as a result of an existing comfortable investment portfolio.
- People with the time and inclination to perform their own due diligence for investing in small cap companies.

How much should I invest in penny stocks?
The general rule for speculation is to keep it between 5% and 10% of your total portfolio value. This of course varies based on your own personal risk tolerance as well as the risk tolerance of your portfolio goal. No one would ever suggest that you put all of your savings into penny stock investing.

What penny stocks should I invest in?
There are certainly too many small cap stocks for one person to cover so it’s nearly impossible to evaluate all of the options when considering penny stocks for investments. It is usually best to choose a specific industry and begin to recognize the patterns of success. From there on, you can apply these success patterns to up and coming companies trading as penny stocks and determine whether they meet the profile. This type of success pattern can be based either on fundamental or technical analysis. There are some sites like this one, that try to pick out a few penny stock picks that you may wish to consider performing due diligence on to see if it is a match for your own investment portfolio. That being said, no website will tell you to go out and buy any stock. The ideas are for information and entertainment only. This is where the risk comes in.

What are the risks?
In a word, everything. Penny stock investing is rife with risk. This is quite natural as the rewards can be quite substantial. There are many companies out there that are hired on by companies to promote their stocks as good investments. Often times these types of promotions will line the pockets of the company owners and leave the retail consumer penniless. That being said, these types of promotion can still be useful in making money if you know how to properly execute on them. But in general, have the expectation that you will lose 100% of the penny stock investment. If you’re not comfortable with that idea then the risk may not be suited to your investing style.

The deal of the century happens every week
So if you’ve made it this far in the post chances are you’re thinking that you might want to take a look and putting a little money into penny stocks. It’s a great idea IMO. But it’s best not to rush into any investment and penny stocks are no different. More than any other market you will hear of penny stocks exploding 120% in a day or 400% in the past month. Don’t let these big numbers make you feel you’re missing out. Focus yourself on the stocks you’re interested in pursuing and once you have a plan then execute it.

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The corollary, if you will, to the adage is known as the Halloween indicator. Basically, the period between November and April have generally been outperforming compared with the rest of the year. While several studies had been conducted on determine whether this trend is something worthy of exploitation, they are largely inconclusive from the investors perspective, unless you choose to believe or disbelieve certain elements.

These types of waves are generally more from an overall market perspective whereas individual stock picking, especially with small cap companies is less reliant on seasonal patterns and more to do with the possibilities that exist within the company itself. My kind of investing.

It was also that way with the blog in a sense. As the author of the blog, I took some time off this summer from blogging to get married. I’m happy to report that all went well and we’re now happily married and had a lot of fun on the honeymoon as well. But we’re back in business now here at the Canadian Penny Stocks blog and happy to be so.

Looking forward to sharing more info and stocks with you all this fall. Continued success!

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If you’re already on the road to penny stock success and you’re just checking out the Canadian Penny Stocks blog for some penny stock ideas, that’s great and we’re going to continue to build on the successes of the past and keep bringing the free goods here.

But if you want more, check out the course. It covers a lot more material in detail than this blog. The course covers things like:
- When to sell profit, when to sell losses
- Researching Management
- Researching Cycles
- Managing Your Profits and Losses
- How to handle penny stock promoters
- Are penny stock newsletters worth it?
- Understanding volumes in Penny stocks
- When to use limit orders and market orders
- How I find penny stocks

The material is what you need for learning more about investing in penny stocks. The community you’ll join will further your successes and finally, the launch price really can’t be beat.

If you haven’t already, take a minute and CLICK HERE to check it out.

Technorati Tags: canadian penny stocks, Investing

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This course goes deeper into subjects than any post at the Canadian Penny Stocks blog and offer a raft of bonuses videos that get you to the heart of how I come up with posts and penny stocks for the blog and for my portfolio.

If you’re as interested in penny stocks as I am you’ll be interested to learn more. For a complete description of what you’re getting there, check out the site at investingcoursesonline.com for the full deal.

There’s a pretty great offer on the course. While the introductory offer itself makes it cheaper than any other video training around, if you couple that with our Questrade offer you will actually make $3.00 by joining the video training course.

The other great benefit of joining this course is the community. The course is setup in such a way that it allows participation by those who take the course, even though it’s completely self-paced and instantly available. By delivering the course this way, your learning doesn’t stop after you’ve finished the videos.

You get the benefit of an exclusive community of like-minded investors on the same path to profiting in penny stocks. Learning in community is always a good thing.

Technorati Tags: picking profitable penny stocks

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I’ve highlighted the channel so you can see how the resistance level was being tested and failing all along the way, but the support level wasn’t getting the tests as often which would be considered an overall bullish trend.
So what happened to the bullish trend?
Right around the same time the technical traders were expecting a correction, the fundamental traders received news of chaos and instability in the world and wanted out. So it was a double dose of bearish sentiment happening to drive the stock market down 600 points this past week.

The bad news beyond the fact that we’re down 600 points is that the chart has fallen through the support of the up channel trend. It looks like there’s a little support at the 13,400 level and then more support at 13,200, but either way you slice it, there appears to be more room for declines in the TSX in the short term.

The fundamentals seem to be supporting more downward movement as well, considering the devastating effects of the earthquake and tsunami. Our thoughts are prayers go out to those people affected by those events.

Technorati Tags: stock market, Technical Analysis, tsx

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Adam Hewison has a great explanation of why gold is where it is and where it is going. It’s firmly grounded in technical analysis which is a good thing for a commodity like gold. Here is the video on gold:

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History and Education
The book essentially covers the history of Wall Street and covers some investing background. Although you might disagree, I think knowing the history gives an interesting perspective on how got to where we are today. This book does a great of giving the history of stocks, the stock market, and the gradual introduction to technology into the markets.

There are educational sections that discuss the different vehicles for investment on the street, including bonds, ETFs, mutual funds, and of course stocks. There is also an introduction to technical analysis, which is another foundational piece of education investors should at least be aware of, if not actively using as part of their investing process.

Keeping Relevant
The book is in its 5th edition and it has done an exceptional job at keeping relevant to the times. Many books published in the early 2000s, would have talked about history from the perspective of a strong bull market. Those books would say that we’ve figured all that bad stuff out and it’s not going to happen again. However we all know that’s not the case, and the book goes into detail about how the economic collapse occurred.

Should you buy it?
It depends. Heard that answer before? If you’re interested in the history of Wall Street and investing then you will likely enjoy this book. It’s not one that I would recommend to a beginner investor. There are a lot more practical books out there for beginners to apply the knowledge to investing. There are a few nuggets of practical advice in Understanding Wall Street however it’s mostly just interesting as a history lesson. At the end you’ll not likely turn into a better trader as a result of the book but you could impress your friends with your knowledge of the history of investing.

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The media loves a bad news story and many people are concerned about Ireland and what they’re going to do to sustain their economy and the ripple effect that will have with Portugal, Spain, and more Greece worries. Are we heading toward another double-dip? How does China play into all of this? The headlines are everywhere and every day we see one more reason to leave the stock market and when we see the news compounded with the big drops in the stock indexes we can be swayed to think that we need to jump out of this sinking ship.

The reality is much different. How many times have you exited from a losing position only to have it turn around days or even hours after you sold it? This can happen all too often to investors who are not convicted by their investing philosophy and goals. Are you convicted? The perfect time to tell whether or not this is the case is on a down day on the stock market where you see all the negative press and the gloomy numbers to support it.

When you feel like selling or just plain quitting, ask yourself if it’s your selling because you have reached your target, or your core investing thesis has changed. The reality in most cases is that neither have happened and you’re letting your emotions get the best of you.

The number one enemy of the investor is themselves. By taking your emotions out of play and checking your reality on days where you’re scared will help you take your investing to the next level of success.

Technorati Tags: Investing, investing basics, stock market

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