Any research into penny stocks may leave new investors wondering why anyone would invest in such a risky venture. Penny stocks are most frequently associated with companies tanking or slipping away defeated towards bankruptcy. If not a flailing business venture, more other penny stocks are those of burgeoning companies attempting to make their way onto the stock market scene.
Penny stocks are a high risk financial gamble with the potential for great profits or total losses of any initial investment.
The very riskiness of entering the stock market through penny stocks traded on the OTCBB or Pink Sheets is also considered its more appealing feature; investors enter the purchase of a penny stocks with a certain degree of realism. The odds of striking it rich with penny stocks is similar to winning the lottery.
A brand new business with profitable potential is significantly less rare than the new businesses whose stocks under 5 quickly actually swell to the more highly regulated stocks of Nasdaq or the NYSE. This makes penny stocks a great way to get started, to practice the subjective and calculated science of researching and choosing stocks to buy. Who could have known, for example, that Ford was ever a penny stock? Ford Motor Company (F) once traded for less than $2 per share just as General Motors (GM) was staring down the barrel of bankruptcy. Since that time, Ford bounced to valuations of over $15 per share.
What an investor learns through buying and selling penny stocks will transfer to the same research requirements, cautions, and pure gut instincts honed for trading on the bigger markets.
Here are five of the best reasons to invest in penny stocks:
#1: More convenience is afforded to an investor trading penny stocks.
When investing in larger business, time and effort is the added cost of the initial capital investment of stocks traded on the larger exchanges. An investor in penny stocks has no need to be on the floor of the NYSE to keep up with stock performance. Penny stocks trading involves low enough costs to set up a trade in the morning before an investor goes to the office and check a mobile app during a lunch break to decide whether or not to sell. In the age of portable technology, it’s never been easier to make a reasonable profit in a single day from wherever you are. An individual investor has no need to carefully monitor the fluctuations of penny stocks in the same way that large cap investors must assess high cost risks.
#2: Penny stocks allow for the new investor to leap over the initial hurdle which dissuades most people from trading on the stock market thanks to the low initial capital required to invest.
The namesake of these stocks started with the association of stocks traded for less than one dollar per share. These days, penny stocks include stocks under 5 which still translates to a low buy in to start learning how to trade on the stock market. So long as the fees and commissions for working with a stock broker do not prohibit activity in the stock market, a large amount of funds are not required to trade. It’s important to note many brokers require a higher minimum balance; shop around for brokers who offer a reasonable level of service which fits into your investing budget.
#3: Owing to the lower initial investment, diversification of a financial portfolio becomes much easier to accomplish.
Penny stocks makes it less taxing on the wallet to buy 2 – 3 different stocks rather than investing a larger minimum amount for a more expensive, single share (for example, Amazon.com Inc. (NASDAQ: AMZN) trades at approximately $949.04 per share). Even if an investor chooses to sell at a mere 20% – 30% increase, penny stocks investors have an opportunity to make more money through simultaneous stock sales.
#4: Speaking of more money, the ROI of penny stocks has the potential to be relatively higher than the stocks of business giants.
While there is no guarantee penny stocks will turn a profit, as they are characteristically volatile and, unfortunately, primed for scams, playing the game with caution and financial acumen may pay off. One has the opportunity to buy thousands of shares at a fraction of the cost of larger stocks and see it double or triple. This is not the every day scenario by any means; however, losses tend to even out over the course of the year with some wins reaching as high as a 1000% increase over time.
#5: When dealing with penny stocks, investors need not take on the stress of day trading.
Penny stocks investors are relieved from the pressure of getting in and out of a trade within 24 hours. After conducting research into a company of interest, if an investor feels confident a stock will rise over the next few years, there is no rule insisting it’s unwise to simply hold the stock over a period of time. Penny stocks investors who enjoy the benefits of trusting a gut feeling about a new, well-managed startup company may simply wait to cash out with a comfortable profit over a period of time. While this will decrease the cost of commissions and fees for the employ of a stock broker, the rules of day trading still apply: make sure there’s an exit plan. Focus on stocks which will not be particularly hard to sell when you’ve reached your limit for losses and want out.
If you’ve decided penny stocks have piqued your interest, remember a couple of conditions which may adjust how much you invest.
You will need to contact a penny stock broker who is well-versed in the penny stocks market. When you find a broker whose fees you can accommodate, you receive a trading platform, chart analysis, listings, and the ability to trade whenever you decide you’re ready to get started.
If you’re looking for a “get rich quick” scheme, understand penny stocks isn’t it. Investing in penny stocks means following the same rules as trading on the major stock markets; perform adequate research and proceed with care.