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Investing In Penny Stocks

Most investors are usually intimidated by penny stocks. I am referring to any penny stock that is trading at $0.10 or less a share, many of these so called microcap stocks or nanocap stock are even quoted lower than $0.01 or as low as $0.001.

At the back of most investors’ mind, it is a junk stock. There must be some reasons why those equities and company shares are traded at such low prices. Many so called savvy investors will not even want to look at them. Blue chips or index stock are usually the preferred choice.

Are Penny Stocks High Risk, Worthless Investments or High Potential, Fast Gains?

  what are penny stocks 
penny trading stocks

At such low prices so close to the zero, many will be concerned their investment may even end up worthless or suffer a great loss if the stock price drops further.

Like in any investments, be it a bond or mini bond, ETF or exchange traded funds, forex futures or foreign currency investing, fixed deposit in a bank, property or real estate  investment, life insurance, every form of investments is dangerous to the uninitiated.

However, on the other hand, if you’re  have a good understanding of the product and equipped with proper risk management control, any kind of opportunities to make money can produce good results.

Just like any of the other financial instruments, penny stocks investment is a good money making opportunity too. In fact, trading in penny stocks can offer you the highest potential percentage gain in the shortest possible time. It is not uncommon to see a $0.01 or even $0.10 stock make a 50% gain or even double in its stock price within minutes. So as to say, a $10,000 trade in a penny stock can be turned into $20,000, making you a profit of $10,000 in a few minutes.

But then again, be forewarned, your $10,000 trade in that penny stock could likewise goes against you in that same perimeter and you’ll have suffered a huge paper loss.  In a nutshell, trading in penny stock can make you huge profits or lose your pants in double quick time.

What is Penny Stock?

Penny stock, the name itself is a misnomer as there is no generally accepted definition of a penny stock.  In America, the U.S. Securities And Stock Exchange Commission states the term penny stock generally refers to low-priced (below $5), speculative securities of very small companies. While penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board or in the Pink Sheets,  they may also trade on securities exchanges, including foreign securities exchanges. In addition, penny stocks include the securities of certain private companies with no active trading market.

In many other countries, penney stocks are referred to equities and shares that trade below $1. Also, there are  some groups of investors define penny stock as any share that is trading for $0.10 or lower.

However, in many other stock exchanges outside the U.S., many of the so-called “penny stocks” are termed as blue chips as they are linked to their respective stock market indices. Many of these blue chip stocks are trading for as little as $1.00 or lower a share. Though these index linked companies’ equities stock are trading below $5 a share, usually they have a very large stock market capitalization. On the other hand, there are many small companies that trade for well over $5.

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