Penny stocks are basically super cheap stocks, costing as much as pennies with some even lower than this. Penny stocks provided limited earnings. If you want bigger earning, you would have to buy more of them.
According to experts, penny stocks can be good investments, but they can also be extremely risky. They are generally best for investors who understand the market. Anyhow, the following are the advantages of investing in penny stocks, followed by the disadvantages you should keep in mind if you’re planning to invest in them.
The primary advantage of investing in penny stocks is the very low cost. You can start investing in penny stocks even if you don’t have much capital.
Easy to Buy
Another benefit of penny stocks is that it’s much easier for you to buy them. They are common shares and they are easily available for the public to buy. And since penny stocks are cheap, investors have the choice to buy a lot of them.
Investors can buy penny stocks many times without worrying too much about the price. Also, there is a chance of gaining higher profit in penny stocks investment as long as the investor manage his or her investment wisely, researching and monitoring stock price fluctuations.
Movements in Quick Intervals
Many people gravitate toward penny stocks because they very quickly. It’s where you get the chance to make money in quite a short span of time. You can basically double your cash or investment overnight as long as the penny stock moves favorably.
Can Transform into a Mid-cap Stock
There are cases where penny stocks will increase its value and becomes a mid-cap stock, which can multiply in value several times.
In order to find a good penny stock, you must:
- Have patience
- Invest lower amount of money at the beginning
- Be smart and get as much information about the penny stocks as you can
- Choose the correct broker who can lessen the risks while investing
- The possibility of a small profit as well as losing all your investments.
- Penny stocks are indeed easy to buy, but they are quite difficult to sell. Low liquidity makes penny stocks a very risky investment for those with lower risk tolerance.
- ‘Pump and dump’ scams can entice people by making a stock popular to increase the demand. This will bring the stock’s price higher and efforts to maintain their value is stopped. The end game is that the stock will crash and the only ones that are left to benefit from the situation are those who bought the stock and then sold it off before the “dump” part of the scheme happened.
- You’ll be dealing with a stock or company that has little to no history at all. For all you know, the company can be on the brink of bankruptcy.
- There is a staggeringly large number of people who lose on penny stocks. This is partly because most penny stock traders are new to the financial world.
- In general, penny stocks are volatile and speculative, making them highly risky investments.