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Using penny stocks to hedge your portfolio may be a more
viable option than you think.  
           Traditional hedging typically involves using complicated options or
    derivative securities, and doing it yourself may require opening margin,
    options, futures, commodities and foreign exchange accounts.  All
    hedging practices consist of one simple theory, however, and that
    involves the concept of insurance.  Hedging your bets is a way to help
    insure that you will be covered if things do not go as planned.  Using
    Penny Stocks, one can often hedge a much larger portfolio while risking
    only a tiny percentage on low priced shares, and be able to do it with
    ease, right from an online brokerage account.  Exchange traded funds, or
    ETF’s have emerged as a way for the average investor with a stock
    trading account to buy baskets of securities in different economic sectors
    or on different exchanges.  This can be a way to hedge your investments
    without opening up any new accounts; unfortunately several problems
    with this practice exist.

            Let’s say you’re heavily invested in bank stocks, and you want to
    ensure that rising interest rates do not destroy your portfolio.  You believe
    that bond funds will do well in this scenario, and you decide to sell half of
    your bank stocks and buy a treasury bond ETF.  If you are right, you will
    ensure that no matter what happens to interest rates and bonds, your
    account value will likely stay right where it is.  If you are wrong, however,
    you may be worse off then when you started.  By using penny stocks, you
    can still make out if your major investments continue to perform, and if
    they falter, you may still make out.  In the above example, let’s say you
    believe that if rates go up, then repossession specialists may do well.  
    You find a tiny public company that specializes in asset recovery for
    banks and financial institutions trading for just pennies a share.  You sell
    just 10% of your bank stocks and buy shares in the Micro Cap Company
    to hedge your portfolio.  If you are right, and your bank stocks fall by 20%
    on rising rates, your penny stock could easily double or triple on
    accelerated revenues more than making up for your loss.  If rates stay
    low, and your bank stocks rise another 20%, your original 10% invested
    in the high risk penny stock is all that has been risked.  If you are
    completely wrong, you have at least kept the risk down, and have not
    accelerated any losses in your portfolio.

            You don’t have to be a major player in the world’s financial markets
    or be millionaire to enjoy the benefits of hedging.  Take a look at your
    own job and your plans for retirement.  Maybe you are heavily invested in
    your own company’s stock options, or maybe your job and salary hinge
    on the profits of your business.  You may work for a company that buys
    coffee beans, and then roasts and sells them.  You know that your
    livelihood may hinge on the fluctuations in commodity prices, specifically
    the price of coffee beans, and you are aware of some threats that could
    send prices higher.  By selling a small percentage of your stock options
    or even by allocating a few paychecks you could buy shares of several
    different penny stocks poised to move in your favor in the event of these
    known threats.  These may include tiny companies selling pesticides to
    harvesters in the event of an epidemic, a company that delivers water in
    case there is a drought or other natural disaster, or just a company that
    sells unroasted beans who will experience better margins in the event of
    sustained higher prices.  Any one of these stocks could skyrocket during
    tuff times taking a lot of the pressure off.  If business remains good, you
    have not risked more than the small percentage of your assets used to
    buy the penny stocks, and chances are they won’t be completely
    worthless.

            The concept of using Stocks under a dollar to hedge is not limited to
    just insuring investments.  You can bet against rising gasoline prices,
    heating oil and propane or natural gas prices, electricity bills, food and
    even real estate prices to name a few.  Let’s say you have a long
    commute to work, and you understand that a one dollar increase in a
    gallon of gas will translate into a thousand dollars extra spent per year in
    transportation costs.  By putting a few hundred dollars into the stock of a
    tiny gasoline refinery company trading on the OTC Bulletin Board, you
    can hedge your commute so to speak.  Timing is everything, but finding a
    stock with just the right capital structure could yield triple or even
    quadruple digit profits in the event of a one dollar spike in the price of
    gas. If gas stays the same or goes down, you have only risked a few
    hundred dollars, of which is made up by the lower transportation costs.  
    The main thing to remember when hedging is that if the event or catalyst
    that you need to insure has already occurred, then it is too late.  You
    must place the most emphasis on hedging your portfolio specifically
    during periods of affluence and prosperity.
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