A Penny Stock can be described as any stock that is currently valued at a price that is very low. Sometimes, people describe a penny stock as any stock that is valued at an amount less than a dollar. However, this is not accurate; in fact, anything that is valued at 5 dollars or less is a penny stock. An amazing thing about trading with Penny Stocks is that you most probably don’t need a new broker. If you have traded with stocks before, then it is highly likely that your current broker can most definitely handle these transactions for you. This means that if you are already good to go with a certain stockbroker, you need to start searching for penny stocks to invest in a bid to diversify your portfolio.
Click on the following link to discover more on how to choose a penny broker. If you do not have a broker, there are several options of how you can go about the process. You can check stock listings and then start doing your research on the companies yourself, look up the lists of top-ranking penny stocks from a website you can trust or even sign up for a service that gives you frequent alerts at a monthly fee of course.
Many times, traders just buy the top penny stocks which are recommended but this is not usually the best approach. Doing your homework will save you money and it is the best way to go if you want to be a winner in this game. Just like with any other business, trading in penny stocks has its good days and downsides. Before you pick a company whose stock you will purchase, find out if it is a real company, what its financials are and what is the story behind the company’s stock being valued at such a low price. Discover more details here. Let us focus on the pros and cons of trading in penny stocks:
Pros;
- Speedy returns
- Ability to turn small investments into something bigger
- A higher possibility of a massive pay-day
- Increased volatility
- Penny Stocks Are Cheap
- It is not all penny stocks companies that are poorly managed
Cons;
- Penny stocks frauds
- Very huge risk
- It is hard to find accurate info about penny stock companies
- The commission cost can cost you a fortune
- Thin market
Let us look into more details on the pros and cons of penny stocks in order to give you more insightful and enlightening information.
Pros;
- Speedy returns
It is not all penny stocks that move swiftly in price. However, the ones that do can basically make their moves, we are talking big price with days and not years. This possibility of speedy returns makes them an investment that is worth the while.
- Ability to turn small investments into something bigger
Most of the traders who invest in penny stocks have little capital to start trading with. If you have around a 1000 dollars to trade, you may only buy 10 shares of bigger companies at most. With the same amount, you could buy thousands of penny stock shares. This diversification of capital will give you a much higher return in the long run even if you started out small as explained here.
- A higher possibility of a massive pay-day
Just as is the case with gambling. For instance, in a casino, there is always the high likelihood of hitting it big. If you do thorough and proper research of penny stocks, you can get to tilt the odds to work in your favor.
- Increased volatility
With increased volatility, comes quicker returns. Unlike in the normal stocks trade, where growth is expected over a period of two to five years, with penny stocks, you can actually see some exponential growth in just a couple of days, sometimes hours.
- Penny Stocks Are Cheap
A large number of penny stocks trade in pennies. This gives you as an investor the ability to purchase huge amounts of stocks and at quite a low price. This is advantageous especially if you happen to have limited capital.
- It is not all penny stocks companies that are poorly managed
There are a lot of naysayers when it comes to the penny stock industry. Most of them believe that the companies that are traded on the penny stock market either have bad financial evaluations or are poorly managed. This is not always the case and is a major stereotype. There exist many solid companies only that they are not yet big enough to trade on the big exchanges.
Cons;
- Penny stocks frauds
Scams in the penny stock market are almost everywhere. Given that they are thinly traded; it takes significantly less action in order to have a major effect on the stock. Protect yourself by sticking to reputable penny stock newsletters. Discover more by clicking the following link.
- Very huge risk
The penny stock market place is one where requirements, listing fees, and reporting regulations are almost not in existence. This attracts low-quality companies which is a very risky environment to trade in.
- It is hard to find accurate info about penny stock companies
Digging up for any financial documentation about a company on the penny stock, can really take effort and sadly bare no fruits. Most investors trade by relying almost solely on guesswork and technical indicators.
- The commission cost can cost you a fortune
Most penny stock brokers charge quite a high amount on commission as opposed to trading in normal stocks where commission charges are fairly streamlined. Make sure you compare stockbrokers to reap full benefits.
- Thin market
Penny stock prices can rise in price very fast and equally drop very fast. The penny stock market is quite thin and when you want to sell, it can prove to be quite daunting to find a buyer. The penny stock market is not meant for somebody who is not risk-averse.
There are many sides when it comes to investing in penny stocks. The spectrum ranges from huge profits and instant wealth to huge losses and utter poverty. The truth lies somewhere between these extremes.