The purpose of this article is to explain to you in simple terms why you are much better off trading Thai shares and not American penny stocks.
Some of the highest earning websites across all of the internet today make their money from hyping the potential profits that can be made on penny stocks, and then selling courses on how to trade them. Although it may be possible to leverage a small amount of trading capital into a significant sum trading penny stocks, the reality is that it is not probable. This is because you must trade American penny stocks in a high risk environment that is characterized by broke, or near broke companies, thin trading, wide bid-ask spreads, and non existent, poor, and sometimes fraudulent, reporting.
The people who are making a killing selling penny stock courses tell you that the secret to success is education, that you must buy their products so that you can learn how to become a better trader. But I disagree. Sure, it is always a good idea to improve oneself with further education, but educating yourself does not eliminate the risks that are inherent in the market on which you are trading. In my opinion, the first thing that you need to do is find a market to trade on that has less of the risks mentioned above. Then you can worry about educating yourself to maximize your profits.
American Penny Stock Hype
Selling courses on how to trade American penny stocks has become big business. With so much money at stake the promotion of penny stock trading courses has become a very slick and sophisticated affair, but once you manage to push aside all the hype it is apparent that the essence of each sales pitch is always the same:
- Penny stocks are cheap.
- You only need a small amount of capital to commence trading.
- Consistent small returns can be made with a hit and run trading strategy.
- Small returns can be rallied into significant amounts via frequent trading.
For those readers who are not already familiar with American penny stocks there are two types. The first type consists of small companies that are unable to list on a major exchange such as the NYSE or NASDAQ, and must therefore be traded via the Pink Sheets, a daily publication of bid-ask prices, or via an online quotation service called the over the counter bulletin board (OTCBB). The second type consists of small companies that are listed on the NYSE or NASDAQ, but are struggling to establish and maintain profitability.
An individual that trades American penny stocks is subject to three primary risks that may be categorized as follows:
- Business failure: Struggling small companies often go bust.
- Poor Liquidity: It is common for penny stocks to be thinly traded with wide bid-ask spreads. Low trading volumes and wide spreads mean it can be very difficult to sell a penny stock once you own it.
- Limited information: Companies traded on the Pink Sheets do not have to register with the U.S. Securities Exchange Commission (SEC) and are not required to report any financial information to stock holders. Companies trading on the OTCBB do have to file with the SEC, however the required reporting is a bare minimum. The lack of information available for Pink Sheet and OTCBB stock makes it difficult to conduct meaningful due diligence. Moreover, Pink Sheet and OTCBB stock is rarely covered by mainstream analysts. The net result is that this type of penny stock is much more exposed to scams, price manipulation, and fraud.
In view of these three primary risks, it is unsurprising that courses on how to trade American penny stocks usually contain the following advice:
- Avoid trading companies on the Pink Sheets or OTCBB.
- Only buy stocks with an acceptable level of trading volume.
- Wait for and trade only the most obvious set ups.
Although this advice is axiomatic, the problem is that if you follow it diligently you are left with just a small selection of potentially profitable trades, and those opportunities are now being pursued by an ever growing pool of newly educated online penny stock traders. This is something that the people making a killing selling penny stock courses forget to tell you.
They also forget to tell you that American penny stocks have become very expensive. The term penny stock is an anachronism. It was coined back when one might indeed buy stock in a U.S company for a penny a share. But those times are long gone. The SEC defines a penny stock as a small company that trades for under $5 per share, but now days a company can be trading for close to $10 a share and still be referred to as a penny stock. Especially if it is operating in a speculative sector. For someone with a modest amount of trading capital, American penny stocks no longer provide much leverage. Two or three thousand dollars does not buy a trader a lot of shares when they cost $5 (or more) a pop.
Another very important thing that the people making a killing selling penny stock courses forget to tell you is that if you have a small amount of trading capital and have to trade frequently to skim small returns, any profits that you make are going to be eaten alive by fixed brokerage fees. At present in America, the fixed brokerage fee for an online trade is going to cost you a minimum of $4.95, even if you are with a budget online broker. At best, that means that the first $10 bucks of any profit you make moving in and out of a penny stock trade goes straight to your broker. You might also be hit with account fees as well.
Stop What You Are Doing
If you are already trading penny stocks, or if you are currently educating yourself to start trading them, my advice to you is to stop what you are doing, carefully read the rest of this article, and then start thinking outside of the box. In the remaining paragraphs I will show you some real examples of why you are much better off trading Thai shares. As you continue reading you may feel that I am painting a picture that looks like something of a penny stock utopia, with all of the advantages, and none of the risk. But please take care to remember that everything I tell you is true, and may be easily verified by a few quick online searches.
A Quick Word About Exchange Rates
Before I start to provide you with real examples of why you are better off trading Thai shares and not American penny stocks, it is essential that I first make sure that you are aware of the currency that is used in Thailand. When you trade on the Stock Exchange of Thailand (SET) your buy and sell orders will be executed in Baht. At today’s exchange rate, 1 U.S. Dollar will buy you just over 34.66 Thai Baht. So if you fund your Thai trading account with a modest amount of say $2,000, once converted, you will have around 69,000 Baht which is ample to commence trading on the SET.
Thai Brokerage Fees Don’t Eat Up All of Your Profits
When you trade Thai shares online via a Thai trading account, you can execute the smallest of skim trades and still keep most of your profit. This is because there are no flat fee structures like those used by American brokers.
My Thai broker charges me a tiny fee of just 0.15% of the value of an online trade. The other day I was tinkering with a new trading strategy and to test it I pulled the trigger on a buy order for 1,000 shares in a Thai company that was trading on the SET at just 0.69 Baht per share. The total value of my order was 690 Baht (less than $20) and the brokerage fee that I had to pay on that amount was just 1.1 baht (about 3 cents). You can see from this example that the percentage fee structure used by my Thai broker enables me to trade frequently, take small profits, and not get eaten alive by brokerage.
There are two other important features of my Thai trading account that I should also tell you about. The first is that I don’t have to be in Thailand to trade the SET online. I can trade from anywhere in the world as long as I have access to a computer (or phone) and an internet connection. The second is that my Thai broker also pays me 1.5% p.a. interest on the balance of any funds in my trading account. And there is no minimum account balance requirement. Good luck trying to find a deal like that from an online broker in the States.
Buying A Blue Chip Company For Under 5 Cents
Image if you worked for me as a professional trader and I asked you find me an American penny stock that is currently trading for less than a dollar, but it must be a well established and financially sound company, a leader in its industry sector, and pay regular dividends yielding more than 6% p.a. You would think that I was nuts, right? But here’s the thing, if I gave you the same criteria, but told you to look at shares listed on the Stock Exchange of Thailand you could find me something in a matter of minutes. Fact is, you could even find a company that meets all of my criteria and trades for the equivalent of less than 5 cents per share.
Take a look at the two screenshots below. They were taken at around 11.00 am today and display the live data for a company trading on the SET called Sansiri Public Company Limited (SIRI).
SIRI is a leader in Thailand’s property and construction sector. It has a reputation for well managed development projects that deliver quality mid and high end properties. The company has been around for a long time, it has good financials, and its shares are very liquid with significant trading volumes every day. Over the last 5 years the company has maintained a 100% dividend payout record and its dividend yield is currently quoted at 6.9% p.a.
Note that the live bid price for SIRI is just 1.72 Baht (about 4.9 cents). Please also note the bid-offer spread of just 0.01 Baht, and a healthy trading volume that will increase a good deal more after the second open for the day… Yes, you read correctly, the SET has two opens each day with an associated spike in trading volumes. What this means is that a trading strategy that works well at the open of a market can be used twice each day if you are trading on the SET. You can learn more about this by reading my article entitled the Thai Stock Market Closes For Lunch.
Listed Thai companies such as SIRI must comply with strict filing requirements imposed by the SET. Failure to do so results in suspension. So unlike U.S. Pink Sheet and OTCBB stocks, up to date listed Thai company information is readily accessible online for those conducting due diligence.
SIRI is not just a rare example that I have cherry picked to make my point. There are lots of lots of other solid Thai dividend paying companies listed on the SET that trade well below 10 Baht per share (less than 30 cents). Below are two more screenshots that were taken around 4.00 pm today of another Thai company called Jasmine International (JAS). Note the trading volume is well over 2 billion shares. There was an announcement earlier today of a takeover bid for the entire company at 7.25 Baht per share (less than 21 cents). The dividend yield for JAS is quoted at 33.81%.
A Quick Word About Thai Derivatives
If you are a penny pinching Pink Sheets die hard who is addicted to trading with extreme leverage, or if you only have a few hundred dollars in trading capital, don’t fret, because the Stock Exchange of Thailand also lists derivatives. For example, JAS issued a call warrant that, back in the first few months of this year, could be bought below 0.45 Baht (about 1.3 cents). The takeover bid for JAS announced to the market today included the offer to buy all of those call warrants for 3.68 Baht each (about 10.5 cents). In percentage terms, that’s a profit of more than 700%. If you want to learn more about trading Thai derivatives, you can read my article entitled 360% Profit in 4 Months Trading a Warrant.
Getting Started
This article is already too long, so I will refrain from posting any more screenshots. But mindful of the principle that rather than give someone a fish it is better to teach them how to use a fishing rod, what I will do is tell you how to get started with your own research into Thai shares.
First thing you need to do is visit my Tickers page. There you will find streaming live price quotes for all of the companies that make up the SET50, SET100, and SETHD (High Dividend) indexes. Take a few moments to watch the price quotes and you will find numerous examples of established, financially stable, and dividend paying companies that trade under 35 Baht per share (about $1). And, even among the bluest of Thai blue chip companies, you will be hard pressed to find anything that trades for more than 350 Baht per share (about $10).
Smart People Think Outside of the Box
Some of the very top earning websites across all of the internet make money from hyping the potential profits that can be made on American penny stocks and then selling courses on how to trade them. Much of the content in those courses is focused upon how to survive in a trading environment characterized by broke, or near broke companies, thin trading, wide bid-ask spreads, and non existent, poor, and sometimes fraudulent, reporting.
If you are attracted to the potential gains that can be leveraged from cheap stocks, you are much better off trading on a market where you can buy compliant, blue chip, dividend paying companies for the equivalent of just a few U.S. cents per share. A market where you can trade frequently, skim small profits, and not be eaten alive by brokerage. Smart people are trading Thai shares and not American penny stocks.
Update: No Capital Gains Tax
A kind member of the Thai Shares community pointed out that I omitted to mention taxation in this article. To make amends, I published a short follow up called Day Trade Thai Shares and Pay No Tax.
If you are an American trading on the Stock Exchange of Thailand the Thai government does not levy any taxes on your capital gains.
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