Penny stocks are affordable for the beginning investor. You’ll discover that penny stocks are new or up and coming companies; or companies that are fast becoming obsolete. This is not to say that those companies are not on the big lists and aren’t worthy of investing in, but they have been known to pick themselves up, dust themselves off, and get back in the game. For this article’s sake, penny stocks are big companies plummeting, which makes them a risk like some of the new companies.
The SEC (Securities Exchange Commission) defines penny stocks as those that sell at less than five dollars per share. Accordingly, other exhchanges consider penny stocks to be those that sell for three dollars or less. Basically, penny stocks are stocks that are not exchanged on the major stock exchanges like NYCE, AMEX, or NASDAQ. It is really dependent upon the exchange in which you are trading in. Penny stocks involve a little more risk than many of the rest for good reason. But just as they contain a high risk, they can be quite profitable for those who manage to trade penny stocks successfully.
The risks that are involved in trading penny stocks go beyond the obvious, and are part of the reason that payoffs are so lucrative for those who are lucky. There is practically no skill involved in successfully trading penny stocks, but there is a lot of good luck needed. If you are a risk-taker at heart then this is the investment for you. On the other hand, it is crucial that you go into penny stocks trading with the complete understanding that you won’t be likely to succeed. In fact, chances are good that you will be just as likely to lose money as it is that you will make money from the prospect. On the other hand, there are those who have beaten the odds and won the game that we’ve come to know as penny stock trading.
A few things to remember before beginning to trade in this risky, volatile market include: first, penny stocks are different from regular stocks that are heavily traded and always have interested buyers. When you reach the decision to sell, it may be some time before a buyer is found. This means that penny stocks are not the most liquid stocks out there, and if you needed to access your money quickly, this is not a good choice for you.
Another thing to consider is that when it comes to penny stocks, there is usually very little information about the companies. Unless you have outstanding research skills and the time and energy to pursue your trading endeavors, you are unlikey to find much background or financial informtion on these companies, unlike many publicly traded companies that are required to disclose their books to investors. This is dangerous and risky to investors, because knowlege is key and schemes are abundant.
Every penny you put into investing in penny stocks should be a penny that you are prepared to lose, and be perfectly happy to earn a return on. You could get lucky with your penny stock investment and earn three to four times the amount you originally invested. But chances are good that the opposite will be the case, and you will suffer a loss of your investment. As long as you can deal with the outcome and just allow yourself to be pleasantly surprised when your trade pays off, you may be the perfect person to trade penny stocks. When deciding the types of stocks, bonds, or funds you want to include in your portfolio you should include a few penny stocks for diversity’s sake and risk a small amount of money on a long shot. The risks you take could turn out to be quite lucrative.
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