3 Differences to Understand With Penny Stocks and Blue Chips
Penny stocks and blue chips are two distinct types of stocks that have some key differences. Penny stocks are typically lower-priced investments that come with a greater risk of volatility than their blue chip counterparts. They are both traded on large exchanges, however, some penny stocks are found on over-the counter markets. Penny stocks are generally considered to be those that trade at less than $5 a share. With this can come a wide variation in the amount of liquidity that exists.
Blue chips, on the other hand, tend to have greater liquidity which helps them to attract more investors. They usually come with higher prices as well and they often represent large companies that have established track records of success in the market. Blue chip stocks are normally widely publicized.
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Penny stocks tend to offer greater potential for high returns in a shorter period of time due to the low cost per share but also come with added risk when compared to blue chips.For example, if a penny stock increases in value from $0.50 to $1.00 per share, that represents a 100% return on the initial investment. However, penny stocks also come with added risk when compared to more established stocks, such as blue chips. With all of this in mind, let’s take a closer look at the main differences between penny stocks and blue chips.
3 Differences Between Penny Stocks and Blue Chips
- Penny Stocks Carry Higher Risk
- Penny Stocks Are More Speculative
- The Timeframe of Investment
Penny Stocks Carry Higher Risk
The potential for higher profits is one of the main reasons investors are drawn to penny stocks. Due to their lower prices, penny stocks have a much greater risk associated with them than blue chips, but at the same time they offer significantly greater upside potential as well. This means that an investor who takes the risk and invests in penny stocks has the opportunity to turn relatively small investments into large sums of money over a short period of time. The higher risk associated with penny stocks also means that traders must exercise due diligence when selecting a stock; making sure to thoroughly research any company before investing in its shares.
Ultimately, penny stocks can be a great way for investors to increase their profits when done correctly and with the proper research, but they must also understand that the risks associated with these investments are much greater than those associated with blue chips. By understanding these risks, investors can make more informed decisions and manage their money accordingly to maximize their profits while minimizing their losses.
Penny Stocks Are More Speculative
The greater influence of speculation on penny stocks means that investors are able to take advantage of more volatile markets and potentially bring in higher returns. This is because there is less liquidity in the market for these stocks, meaning that their prices can swing dramatically depending on the level of speculation around them. As such, investors who are willing to take greater risks have a chance to make significant profits by speculating on penny stocks. The potential payouts can be even larger than what would be possible with blue chip stocks due to their heightened volatility.
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However, this also means that investing in penny stocks carries greater risk as well. Because they lack the backing of large institutions and have limited liquidity, there is a much greater possibility of losses if the market shifts unfavorably. As such, investors should take extra caution when investing in penny stocks and ensure that they understand the risks associated with them before deciding to invest. It is also important to keep track of the news and events surrounding a particular stock in order to better gauge its potential for profit or loss. With this knowledge, investors can make more informed decisions about when to buy and sell their shares and potentially bring in greater returns from their investments.
The Timeframe Of Investment
The shorter timeframe that investors typically invest in penny stocks presents several advantages over blue chips. For one, the potential for higher returns is much greater. Since penny stocks are low-priced and more volatile than blue chip stocks, there can be a much larger return in a shorter amount of time. This makes penny stocks attractive to those who don’t have the patience or resources to wait out longer investments.
Additionally, since these types of stocks are sometimes overlooked by institutional investors, they tend to offer great entry points at bargain prices. Finally, because the stock price is much lower than it would be with blue chips, traders tend to invest less capital when investing in penny stocks. All of these benefits make penny stocks an attractive investing option for those looking to maximize their returns in a short amount of time.
However, it is important to note that penny stocks come with significantly more risk than blue chips, and investors should understand the risks associated with these investments before making any decisions. Finally, because they tend to be more volatile than blue chips, they can quickly move up or down. Therefore, it is important for investors to have an exit strategy in place before investing.
3 Penny Stocks to Add to Your Watchlist Right Now
- Exela Technologies Inc. (NASDAQ: XELA)
- Tellurian Inc. (NYSE: TELL)
- Gossamer Bio Inc. (NASDAQ: GOSS)
Are Penny Stocks Better Than Blue Chips?
It is difficult to say whether or not penny stocks are worth investing in, as it ultimately depends on individual circumstances and risk tolerance. Penny stocks are generally considered to be highly risky and volatile, and they can be large price movement during intraday trading.
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However, they also have the potential for high returns, so they may be worth considering as part of a diverse investment portfolio. It is important to thoroughly research and carefully evaluate any penny stock investment before making a decision. It may also be helpful to consult with a financial advisor or professional for guidance. With this in mind, do you think that penny stocks are better than blue chips or not?
