A low float stock is simply a stock whose price has dropped considerably from its listed price. Typically, any stock having more than 20 percent of shares outstanding as of the listed date is considered to be a low float stock. These stocks have a very low profit potential and are usually traded on margin. Consequently, they carry very high trading charges.
Many day traders like to trade highly volatile stocks, or “volatility.” A highly volatile stock is one that rapidly fluctuates in a single direction, and it is not very easy to make an accurate prediction of its direction in real time. This is the main reason why many day traders prefer to trade them on margin. But what if you could cut your losses by trading low float stocks?
If you were able to reduce your losses by trading these types of stocks, then you would be able to earn high profits. In fact, many day traders and investment professionals think that this type of stock trading is very similar to “Diversified Trading.” This form of stock market investing involves buying shares of companies that are well-known, but not very popular. Thus, even if the market price of the stock increases, you can purchase shares of the same company at a low price and then sell them again at a high price, earning huge profit on the move.
This is the concept of “Diversification.” By choosing to trade these types of shares, you are reducing your overall risk. As mentioned earlier, some traders like to trade these types of stocks on margin. However, if you were able to reduce your losses due to diversification, you would still experience a high loss percentage if the market goes in a bad direction. However, if you choose to trade low float stocks, there is very little to lose.
So how do you select the right low float stock? The most important thing is to choose a company with a good market history. Although you have to wait for a few years for the low float percentage to increase, this percentage doesn’t necessarily indicate the quality of the company. Some of the best low float stocks are sold by institutional investors who have a large amount of money invested. If this is the case, then you have nothing to worry about the organization’s financial health.
Another key factor is to check the volume of the company. You must understand that if the volume of the company’s share trades is low, then the quality of the stock is also very low. In order to find out the quality of the low float stocks you want to trade, check the volume of the company’s share trade, and then look for fluctuations. If you see that volumes are consistent, then you are likely going to get a good quality stock.
We go into more detail about low float stocks and how to successfully find and invest in them in our premium courses. At The Profit Room we don’t just chat about low float stocks, we trade in low float stocks and we would love to share our expertise with you to help crush your goals on your wealthy journey.
