Are Penny Stocks Profitable?

Higher risk and lower share prices attract investors to penny stocks. Butare penny stocks profitable or are they just a risky bet like at a casino’s roulette table? These types of stocks trade outside of major markets like the New York Stock Exchange and the NASDAQ. When it comes to penny stocks, investors will open accounts with some of the best penny stock brokers that will offer access to these higher risk stocks.

As in most cases, companies need to put forth the best possible effort in order to grow from “humble beginnings” to market leaders. But in many cases, investors scour through lists of penny stocks with high hopes to find the next overnight success story. Needless to say, companies like Twitter (TWTR) and Facebook (FB) didn’t grow to large cap status overnight. But all the same, penny stocks can certainly be profitable for investors and companies alike.

What Is A Penny Stock?

The terminology used to describe “penny stocks” or a “micro-cap stock” usually go hand in hand. In form, micro-cap stocks represent companies that have a market capitalization between $50 million and $300 million. Anything less than $50 million is considered a “nano-cap stock”.

So, what is a penny stock? According to the Securities and Exchange Commission, a penny stock is any stock that trades below $5. Some definitions of penny stocks have an upper price limit of $3 and others pin the limit at $1 per share. In general, most stocks trading on the pink sheets or over the country bulletin board (OTCBB), are considered a penny stock.

Why Are Penny Stocks Risky?

Besides being incredibly volatile, penny stocks don’t have to follow certain standards that their larger cap comps do.  For starters, there is usually a lack of public information for certain companies. Essentially, the large news organizations will not report on these types of stocks.

Therefore it’s up to the companies themselves to circulate news. In many cases (and another risk) comes with third party reporting coming from biased sources. For this reason, it’s important for investors to research everything in detail. This includes penny stock news as well as the corporate financials that a company files (If they file timely reports).

Don’t forget that most penny stocks will have limited company history. This micro-cap stock sector is full of start up companies looking to make it big. It may be hard to get the full picture from newly listed penny stocks. Liquidity can also be a risk for investors. 

Again, due to the information above, there are typically less liquid stocks in the market.  Low levels of liquidity can also open doors to manipulation. Be aware of the risks involved when looking for the best penny stock to buy.

Profitable Penny Stocks

Don’t let risk deter you from buying penny stocks.  We’re simply highlighting the importance of understanding the many risks involved. Investors need to do a lot of studying and due diligence before making any investment. It may also be wise to consult a financial professional if you’re new to investing, altogether. If you can handle the great risks, there could be greater reward around the corner.

When it comes to penny stocks, even the smallest move in price can create dramatic gains for an investor. For this reason, it’s also important to know the best technical strategies to find top penny stocks.  Take a look at marijuana stocks, for instance.  The boom in legal pot began in 2014 and has grown ever since.  Even at its infancy, many of these cannabis stocks were penny stocks.  Since the early days, many have catapulted from trading below $1 per share to now trading upwards of $20 per share.

How To Buy Marijuana Stocks Like Tilray & Others

Similarly, take a look at many of the biotechnology penny stocks and information technology penny stocks.  These also follow suit with highly volatile and highly profitable moves in price.  Each day PennyStocks.com will report on the top penny stocks to watch so make sure you subscribe and pay a visit when you’re on the hunt for information.