Why Some Investors Choose To Trade Penny Stocks

Getting involved in the stock market can be very rewarding. However, it is a fact that not all stocks are affordable. That is why the price factor of stocks has produced three levels of stock investments to accommodate investors.

These levels are the large cap stocks which involves multi-billion companies, the medium cap stocks which have noteworthy assets in respect to their capitalization, and there are the small cap stocks which are commonly known as penny stocks. The term penny basically explains a lot about its capitalization. Among the three, penny stocks are the most accessible to the common investor, therefore making it their preference among the three levels.

There are numerous terminologies for penny stocks. Some stock market traders call it micro cap stocks, while a few prefer to call it small cap stocks. Several traders refer to it as nano cap stocks. Occasionally traders brand it as emerging growth.

So why do some traders prefer these stocks over other stock investments? Here are four fundamental reasons that answer these questions:

It has a very economical price, thus making it affordable to investors. Penny stocks usually have a starting price that does not exceed five dollars per share. In fact, the most usual pricing is at three dollars, one dollar or less than a dollar.

The only downside of this kind of stocks is its low level of liquidity. A good example would be stocks that are derived from pink sheets. These stocks normally lack significant information that would be vital to your decision making.

There are more press releases than large and medium cap stocks. Penny stock promoters do this for the main reason of exposing information to the public in order to attract more investors. However, many times these press releases are abused by fraudsters through the use of over hyped statements. If your promoters are credible, their media exposure will definitely increase the value of your stocks, thus generating an opportunity for profit.

Based from stats and information, penny stocks offer a high possible return of your investment. While the risks of small cap stocks trading widely known it is still possible to gain profit. Research and exposure will help you understand the trading system of penny stocks and allow you to see the numerous potentials of trading small stocks.

A number of up-and-coming companies or new products utilize penny stocks as a springboard. New products that are launched to the market do not have any assurance of success, therefore the only probable way to confirm its potential is to check the manufacturer’s background. Extensive research is required to be successful in the trading of penny stocks. Successful investors usually spend about five hours per day in researching for vital information.

Investing in penny stocks is a good first step towards the world of stock trading. It requires a very small starting capital yet provides almost identical experience and profit as the major markets. Your success will highly depend on your commitment and effort. Accurate information and sensible decisions will be the key to profit.

This entry was posted in Stocks. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *