how to invest in penny stocks

When investing in penny stocks, it’s important to understand that penny stocks often trade outside main exchanges like the NASDAQ and the New York Stock Exchange. In general, investors know that penny stocks are far riskier than other forms of trading. This is especially because they are largely speculative and represent shares of companies without much of a proven track record. Having said that, the volatility associated with penny stocks is one of the very reasons that slews of investors want in on the action.

Let’s say you’ve decided to invest in penny stocks. There are a few things you need consider:

The Bad When Investing In Penny Stocks

Not Much Info

For the most part, there isn’t a significant amount of information available on penny stock companies. Because of this, penny stock trading is riskier because you can’t research the companies you’re looking to invest in as easily as some of the larger publicly traded companies.

Highly Volatile

Another thing to take into account is the sheer amount of volatility surrounding penny stocks. Share prices of penny stock companies range from pennies on the dollar to five dollars per share. This means that any investor on the street can invest quite a bit of capital into the company of their choosing. Because of this, the price fluctuation for penny stocks can be dramatic.

The Good When Investing In Penny Stocks

Make Those Gains, Quick!

Investing in penny stocks presents the potential for impressive gains that can occur very quickly. For investors willing to put in the time and effort, their investments can be incredibly lucrative. Penny stocks can make a lot of money in a relatively short amount of time.

Diversity 

For the most part, penny stocks are short-term investments. Compared to blue-chip companies like Facebook, Twitter, and Google, penny stocks are by no means a long-term play. Having said that, penny stocks can help with your return on investment within your portfolio year after year. Typically, investors will allocate a smaller portion of their portfolio to these high risk stocks (10%-15%). In the end it will be up to the individual trader to decide what that number looks like.

People buy penny stocks day after day because of the sheer potential of making considerable gains in such a short amount of time and with less money. If you have an interest in trading penny stocks, it’s crucial that you understand exactly what you’re getting involved with and know how to invest in penny stocks. If true wisdom is knowing that you know nothing, take that understanding and pursue knowledge to learn how to maximize your gains and reach your investing potential.


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