When it comes to trading junior mining stocks, a lot of people think that they are the same as any other equity. Sure they do trade the same as any other hot penny stock out there but the charactarists of them is quite different. There are many things to be aware of. One of these is whether to day trade the stock or swing trade the stock or just hold for the long term.
Firstly, most of these mining stocks are Canadian stocks so you will need to find a penny stock broker who deals in Canadian gold stocks and Canadian mining stocks if you want to buy or trade penny stocks that are in the junior gold sector. Also because a lot of these stocks can be pennies in price a lot of people think that you can make a lot of money. After all a 10 cent stock just has to go to 15 cents and you made 50% on your money. Not bad considering some of these stocks can explode to the upside by the 1000%. That is why a lot of people trade penny mining stocks as a living. But what most fail to be aware of is that a lot of these stocks are very illiquid, meaning, they don't trade very much. It is easy to find a 10 cent stock but when one looks at the trading range over the past year or so you may be see that it has not traded very often. Or the trading volume is slim. Buying a stock that you can't sell or the spread between the bid and ask is wide is a sure way to loose out
Secondly, most junior mining stocks are owned by companies that depend on venture capital or private placements to keep them funded. Because they are in the exploration business, they do not have a way to generate any income. They just spend it. They may have mineral property or the rights to certain properties, but as they say in Canada, it could be just moose pasture. Without any good drilling results in the ground or good assays, there is not much to get excited about. Exploration in remote areas of the world is a very costly venture. Litterly millions of dollars can be spent on a maybe or what if. But as history shows so often, when it comes to gold and gold mining in general, people are always willing put out the money and make their bet. Precious metals always holds the fascination and dreams of easy riches and wealth. Mention gold and most investors rich and poor will raise to alertness.
A lot of these companies are kind of like sheep. Meaning they follow one another around. Or so it seems. One company finds a hot spot or new strike and it seems the staking rush is on. In a matter of days all the surrounding properties can be snapped up and staked. You can always see this in the trading activity of the stock with these companies. The one who finds good results, the stock price shoots up. Those who have property around or close by will see some activity in their stock trading to the upside. People have a tendency to chase to rumors. Some refer this to ambulance chasing. People
While most online brokers will have a stock screener where you can put in the price, the industry, the trading range etc. there are also other sites like the Globe and Mail or the Finacial Post. One of the best is Investors Business Daily but they do charge for a subscription.
Another good place to start your research of these companies is right here on Juniorminers.com. This website has alone has over 1800 junior mining companies listed and this list keep growing. Each company has it's stock ticker and exchange plus a link to it's website.
There are many other places on the internet to find which stocks are having a lot of trading activity. Places like Stockhouse will have each day and throughout the day various news blips on the hottest performing junior stock. This will give you an idea of who is doing what and where. Stockwatch has fair coverage of news releases of penny mining stocks. These news releases are there to let the public know of any material changes to the company. It could be anything from drilling results to land acquisition and anything else in between. Kitco has a front page of new releases updated by news feeds plus as an added bonus you get updated real time metals prices and gold prices. These are sites one should have on their favorites list. I would like to caution that on chat rooms and bull boards you have to really do your own due diligence because of those who bash or worse yet, those who have bought really low and start to pump the goods about the stock only to dump it out. This is called a "Pump & Dump".
Warrants are rights to buy stocks at a certain price until a certain date. They are very similar to options in that they can be exercised to obtain common shares at a fixed price. The difference with warrants is that they have a time limit that can range from 2 years to even more than 6 years. These can be bought and sold or traded for common shares. This process does add dilution to the stock but it does provide the company with needed funds when they are first issued. Warrants are like little sweeteners that are added to those who put out the money on financing. It can be viewed as a risk enhancer or interest.
Warrants when first issued will have a hold on them for a set period, say 6 months then after that they can be put out for sale to be traded. Each issue of warrants has an expirery date and an exercise price. An example would be a company has a stock price of $1.00. The warrants are say good for 5 years and have an exercise price of $3.00. If the stock reaches say $5.00 before the 5 years is up, these warrants will allow you to buy the above stock for $3.00 thereby giving a two dollar profit. The warrant itself maybe trading by this time for close to $4.00 so if you had bought them for $1.00 you would have gained $3.00 profit whereas with the common stock you would have paid $3.00 and only be up $2.00 at this point.
The above example is one of the pros with warrants. Now with the cons.
Due to the time limit as say the five years comes close the warrants loose there appeal if the stock price is not performing. Let's say the stock price that was $3.00 at the time of issue is now $1.00. Why buy the warrants that have a $1.00 exercise price with little time left when you can buy the common stock with unlimited time.
I would think if the stock had fallen to $1.00 the warrants would be trading for less than .10 cents by this time.
So you will see that there is great leverage both ways. It all depends on the stock, it's sector, and of course time. This is one case where timing is everything.
