Penny stocks or binary options

Penny Stocks Vs. Options-Which Is Better to Trade?

Are you looking to begin trading in the stock market? The key word here is “begin”. When most new traders are beginning to trade, they don’t have massive amounts of money to work with. Because of this, they quickly realize they don’t have the account size to be able to trade big board stocks like Apple and Netflix.

Due to this, many traders embark on a quest to find something that can help with their situation. After going through search engines and other forms of internet searching, many times they are drawn into penny stocks due to the promises of large account expansion with little money required. It would not shock me at all if you’ve already taken a look at penny stocks, as they have a much lower cost of entry and can offer those promised “off the charts” gains.

My real question to you is this: have you taken a look at options? Maybe you aren’t sure what the difference is? Keep reading as I’ll cover the differences between penny stocks and options so you can make the best decision for your personal trade plan and goals.

I’ve broken this comparison down into nine different sections, let’s just take it section by section and Ill address penny stocks and options in each section.

Commissions/Fees/Regulations.

When trading both penny stocks and options, assuming you have a discount broker, the fees are virtually the same, so the cost of trading is a wash. Sure, some brokers are better than others for penny stocks just like some brokers are better than others for options, but all in all, if you find the right broker for what you are wanting to trade, it's an even match up. However , with penny stocks you are restricted by the pattern day trader rule that limits you to only three “day-trades” a week if your account is under $25k. With options, you are not subjected to this rule (learn how to avoid the pattern day trading rule with options) When it comes to regulations, options wins, hands down.

Number of Trading Opportunities.

What do I mean when I say “opportunities”? Well simply put, this means the frequency in which a viable trade situation comes around where you could realistically make money. In the penny stock world, a given stock can go months at a time with very little or no movement. It can sometimes be really hard to actually find a penny stock that is moving and is setting up for a trade. Why is this the case? By nature, the penny stock market is very illiquid, meaning there just isn’t much trader activity. Traders must buy and sell amongst one another to create volume (liquidity), and there just is not large consistent amount with penny stocks. Options on the other hand are based off of big board stocks and ETF’s. With these types of stocks/ETF’s, there is a consistent and routine high amount of volume each and every day, hence making it much easier to find an opportunity that gives you a realistic chance to pull profits from the market.

Potential Trade Gains.

The allure of both penny stocks and options is the low cost of entry and high percentage gains, so if all else was created equal, this would be a tie. For the numerous downfalls of penny stocks, to be fair, penny stocks if they can get moving can certainly make large jumps in price. Keeping things in perspective though, when we bring opportunities (see above discussion) into the equation we see that options have the ability to allow for these types of gains much more frequently.

Cost to “Get Involved” in the Trade.

As mentioned a couple times already, both penny stocks and options have a fairly low barrier to entry. Meaning the cost to start trading is quite low. In both cases, $1,000 or maybe even less would be more than enough to get started.

Your Trade Plan is at the Mercy Of…

In the trading world, you want to be able to put yourself in situations with as many variables remaining unchanged as possible. When it comes to penny stocks this can be hard. Often times the management is a very flakey and does not act in the company’s best interest. You are really at their mercy as they could make some bone-headed announcement or decision that causes a large drop in the price and therefore destroys the position you are holding and leave you flailing in the wind. Options on the other hand are based on big board stocks. These are large companies that have tried and true records, and are run by a highly intelligent management teams and board of directors. In other words, there is rarely any drama with a big board company. You can count on these companies being run well and won’t have the violent swings in management. With penny stocks, “drama” is a commonly used (and rightfully so) word to describe them.

How Fluid is Trading (volume)?

Fluidity is a big issue when it comes to penny stocks. Many times if you pull up a penny stock technical chart the price is jumping all over the place and the chart as a whole appears “choppy”. I’ve discussed this a bit already, but this is due to the small and inconsistent amount of volume of shares being traded. This creates the problem of unreliable technical indicators, chart patterns, and a host of other tools that traders attempt to use. Options, being based on big board stocks, have much higher volume. The best way to illustrate this is to tell you to go and pull up a penny stock and a big board stock, both looking at the 5-minute time scale. You’ll see that the big board stock has a much more fluid trading pattern. The penny stock chart will be very choppy looking and may not even look like much of a chart at all. By being more fluid decision making and reliability with options makes it much easier to identify patterns and trends in the chart.

How Easy Can You Sell?

There are two parts of a successful trade, buying and selling. This may seem very obvious, but it is the part that most new traders do not understand. Remember, you can always “buy”. But in order to “sell”, there has to be someone who wants to buy from you. This is getting repetitive I know, but I hope you are seeing the massive problem of volume. Because in penny stocks there is not a huge amount of volume, at times it can be VERY difficult to find a buyer for your penny stock shares when you want to sell, especially if you put in larger amounts of money. With options and their higher volume, there is almost always someone out there looking to buy. In other words, using an economics term, it is a very efficient market.

Making Money Flexibility.

How many different strategies can you run? With penny stocks you are limited to just going long in the stock. Technically, you can short penny stocks, but finding the right brokers is an annoying quest at best. On top of this, the fees associated with shorting penny stocks (due to the HIGH risk involved) are extremely high. Point being, you can only make money within penny stocks when the stock price goes up. Options allow for 100% flexibility. Whether the price goes up or down, the way options are structured give you the opportunity (you’ve seen this word before!) to still profit. To spice things up that much more, with some of the more advanced option strategies you can even make a profit if the price of the stock sits still and does nothing.

Learn Personalities.

As any seasoned trader who has been around will tell you, every stock has a personality. If you follow one stock long enough you can begin to learn and identify with that personality (defined as “how the stock tends to move”) and use that to you advantage. With penny stocks this is hard and essentially impossible. In the vast majority of instances, the stock “in play” is good for a few days/week and maybe a couple months before it drifts into oblivion. Because penny stocks that are “in play” are constantly changing, this cycle makes it nearly impossible to identify the personality of any given stock. With options there are many stocks that day in and day out are consistent with activity. Therefore, it allows traders to learn “how” the stock price tends to move.

Final Thoughts.

If I do my math correctly it looks like we have a score of 7 to 2 in favor of options. Does these mean you shouldn’t trade penny stocks? Absolutely not, if penny stocks fit better into your strategy and plan, then by all means go that route. However, based on my experience as a trader and teacher, often people who started out trading penny stocks eventually move to options for many of the reasons listed above (and talking with these people is how I’ve constructed this list). Penny stock traders eventually get sick of tired of “watching paint dry” as they wait for their positions to move. Others simply become frustrated because while sure, they can buy shares, when it comes time to sell those shares (for either a profit or a loss), it can turn into much more than just a click of the “sell button”. All in all, you need to put as many odds in your favor as possible, and the reality of the situation is that options trading allows you much more freedom, opportunity and flexibility.

Binary Options Edge.

Binary Options vs. Penny Stocks.

Like This Unlike OptionKing 24 Jul 2013.

Several months ago, early in 2013, I read an article written by a penny stock promoter who said that Binary Options are just a fad and will not be with us for long. Where has this guy been? Binary options have been around for years. I believe binary options are superior in every way to penny stocks. First and foremost, binary option traders are investing in an asset that is very real as opposed to a penny stock fairy tale. Penny guys brag about 200% profits but they do not tell you that those deals come once in a blue moon. Most penny stocks seem to drift down toward the worthless level. If you notice, there are tons of people around chatting about penny stocks on message boards and in newsletters and the like. Very few people seem to want to chat about binary options. Why? Because the penny stock community is loaded with people who try to manipulate the price by talking about them. The penny market is loaded with folks who are positioned on the sell side. They have to find people to con in order to get out of their worthless stock. The binary option world has people who are real traders. I prefer our binary options world much better. At least we know we are trading an asset that is real. We can trade just like the big boys without hurting people like the penny players do. Binary Options are superior to penny stocks in every way, shape and form. To this former penny stock trader, binary options are a huge breath of fresh air.

Like This Unlike Tripack 24 Jul 2013.

Well, I don't really argree, compared to penny stocks maybe but not necessarily compared to forex.

It's a common thing to all of us to try and improve our entries, but the primary goal is to keep you with enough ammo to continue trading. Binary options is very dangerous in regards to that aspect as you can barely control anything once a trade is placed, you can hedge but again it's a new trade with a fixed expiry.

From what I noticed, ow experience, with spot forex, or CFDs or Nadex etc you can control your trade so you are much better in control, overall. Spot with a decent leverage (no need to be exaggerated) will probably get you into some decent and especially con-sis-tent profit-taking routine with drawdowns off course but not as much as with bins. Also less intensive since you can let profit runs. Ok it's just my own experience here.

Forex Blog at ForexAbode.

Comparison between Forex, Binary Options and Penny Stocks Trading.

Whether you want to make an investment that will boost your savings account or you want to build a diversified portfolio and a career in trading, investing in foreign exchange market, binary options or penny stocks may seem very appealing. In this article I am going to analyze and compare these three types of equities and determine all advantages and disadvantages they come with.

Forex is the largest and the most liquid market in the world and its trading value is more than $1,9 trillion per day. Before digital age only central banks, corporations and other large financial institutions were laying investments here, and with the introduction of internet and online brokerage accounts, everybody has a chance to buy and sell world currencies.

This market is known to be much less volatile than binary options, and especially penny stocks. Most currency values change very slow, usually for less than 1% a day. This makes Forex much less dynamic, and the only way to earn meaningful profits is by having enormously big leverage (even 250:1 in some cases). High leverages became an industry standard on Forex and although exchanging amounts that high sounds risky, extreme liquidity of the market makes these large investments the only profitable option. Forex market is also know for being very objective, because its size doesn’t allow large players or manipulators to change prices at their will.

One of the main market characteristic that makes it both popular and risky are the low margin requirements that online brokerage firms provide. With putting only $1,000 up front, trader can control 100 or 200 times bigger amounts, with borrowing the remainder from the broker.

Although being very liquid, there are still lots of factors that can influence currency supply and demand. Some of these are:

Interest rates Economic performance Political situation, etc.

Binary Options.

Binary options are very simple to trade and they are similar to red-black system in roulette, just the outcome of the trade is not only defined by luck, but by many other parameters that determine stock prices and different market outcomes. Comparing to investments in Forex or penny stock market, binary options certainly seem like placing a bet. The difference is that bids and asks are not determined by the “casino”, but by traders themselves and they are made upon probability of the proposition. The simplicity of the trading process for these assets, made them widely popular and there are many companies like NEDEX and Chicago Board Options Exchange that are authorized to sell binary options to US citizens.

One of the main benefits of this kind of investment is that all risks are capped and it is not possible to loose more than the cost of the trade. Unlike on Forex or penny stock market where pairs are barely moving, binary options come with the known payout which depending on the option can have really high reward to risk ratio . Capped risk, can also be viewed as a disadvantage because it caps traders gain at $99, even with the most favorable pair. Another good thing about these equities is that they are accessible even to beginner traders with very limited funds.

Penny Stocks.

Every successful company of today started as a micro-cap stock. These stocks are traded on pink sheets or over-the-counter bulletin boards. They are known as much more volatile than the blue chip stocks and there are four major factors that determine this:

Lack of information - penny stock traders need to find alternative ways to collect information about the company . No Minimum Standards – micro-cap companies whose stocks are sold on pink sheets, don’t need to fulfill SEC minimum standards, although lately OTCBB requires companies to file their documents to SEC in a timely manner. Lack of History - companies are usually newly found and have no track record. Liquidity - penny stocks generally have low liquidity, which enables certain traders to pump up the prices of stocks they own.

Accept having very low price per share penny stock s also have very quick moving intervals, much quicker than blue chip stocks as well as binary options or Forex. Their affordable price enables investors to buy as many as they wish, and make more diversified portfolio. Last but not least, certain stocks often move from micro-cap to mid-cap market, which multiplies its value several times, and provides great returns that can’t be acquired on Forex or binary options market.

Bottom Line.

All three of these investment opportunities are great for beginners. Penny stocks are definitely the most volatile out of all three, but they also offer the highest possible returns. For traders who want always to know their score, binary options with capped gains and losses, are definitely the best bet, while Forex is great investing environment for traders that prefer high leverage combined with relatively stable market. Investors can also try their lack on some other markets and invest their funds in: bonds, trusts, real estate, blue chip stocks etc.

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