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Penny stocks - highly profitable and risky

There is no real difference between normal stocks and penny stocks besides the fact that penny stocks will not be traded with the use of the main exchanges we normally see. By definition, these are stocks that would trade at a value of under five dollars. You trade them in the exact same way as you trade the regular stocks: buy at low values and then sell at high values.
The huge problem with the penny stock is that it will always be a lot more volatile than the normal stock. This is also a huge advantage at the same time. Statistics show that small cap investors make more money because of the risk that they are faced with. Using penny stocks puts you right on the path, leading you towards the possibility to make quite a lot of cash. As an example, with penny stocks we can see a growth of 100% in just one day as opposed to even years with the normal stocks. One 1 cent share can rise in value to 2 cents in 24 hours. However, a $30 share will not rise to a $60 value in only 1 day.

The bad news

When you invest in penny stocks even with a highly detailed guide, the volatility can easily lead towards a complete investment loss in just one day. The above mentioned 1 cent per share example can easily end up being virtually valueless. When you put your money into regular stocks, it is possible to lose all the money too but that will take a considerably longer amount of time. That will allow you to quickly cut losses and maintain one part of the capital you have.

Due to the volatility of penny stocks, it is easy to be eliminated when you are not extremely careful. The penny stocks will not always ask exactly as you expect them even after you go through a really strong analysis. Bad corporations can easily go up and the good corporations do tend to go down.

The good news

The highest advantage is that you can end up making a huge profit in a really short period of time and with a really small investment. Although you can end up losing most of the investment capital, the damage done will usually not be high since only a really small part of your budget is necessary to trade penny stocks. At first glance, adding one penny as an investment and then having two pennies the following day will not seem like a life-changing event. That is why many tend to invest more and more until they lose their funds.

Conclusions

As you can easily notice, there are both advantages and disadvantages of investing in penny stocks but it is worth taking the necessary time to consider the opportunity. You want to be careful and you need to analyse every single option that is available. That is what will help you out the most at the end of the day. Most of the highly successful investors that use regular stocks will also use penny stocks since there is this possibility of making a huge profit.

12 Jan 2016 11:19

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About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.




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