Most individuals have never considered investing in Penny Stock, this article highlights some helpful resources, is educational, shares some research, and encourages finding a stockbroker for more information.
Is investing in Penny Stocks Right for You?
Benefits of Investing in Penny Stocks
- Huge upside potential even when investing small amounts.
- A significant number of companies to choose from.
- The Ultra-low-cost of each Penny Stock allows you to purchase a large number of shares.
Pitfalls of Investing in Penny Stocks
- Extremely speculative.
- Ultra-high volatility levels.
- Low liquidity could make it difficult to sell stocks at a later date.
- The vast majority traded on OTC markets, meaning the investment process is more complex.
- Often a large disparity in spreads.
- Lack of frequently available company information in the public domain.
One of the main concerns traders should have before investing in Penny Stocks is about the exchange where the stocks are being offered, the liquidity that provides an electronic exchange, and the ability to jump in and out of positions with a tight spread will not always be available when trading penny stocks and especially when these stocks are traded on the OTC market.
While price swings can take months or even years to develop in Blue Chip Companies, penny stocks can double or triple their value on an intraday basis, attracting day traders and investors looking to profit from the possible growth and from these extreme movements in price.
Many investors will spend time and money looking for a unicorn type of opportunity to invest in a company with high potential and that is still relatively cheap to its potential.
A cheap investment doesn’t translate into a poor investment but with stocks, it is a little bit different since a low price might have a reason behind it. There are many publicly traded companies that reach the border of bankruptcy and with great management got to improve and eventually leave the category of Penny Stock but this is not the norm in any case and will definitely need institutional investors or a big catalyst to occur for this to take place.
