Penny Stock Basics Trading Penny Stocks

Why Some Choose Penny Stocks Over Blue Chips 

Are penny stocks better than blue chips?

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3 Reasons to Choose Penny Stocks Over Blue Chips 

Many seasoned and novice investors alike are drawn to the world of penny stocks for a variety of compelling reasons, with a significant potential for high returns chief among them. Unlike their blue-chip counterparts, penny stocks can offer an attractive entry point for individuals seeking to initiate or diversify their investment portfolios. Their relatively low price per share can present an accessible avenue for investment that may yield impressive gains in a short time frame.

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Secondly, penny stocks, those stocks priced under five dollars per share, are often associated with lesser-known companies. As a result, they can offer a unique advantage: the opportunity to uncover hidden gems in the market. Investors who invest the necessary time and effort into diligent research can discover undervalued stocks poised for future growth, potentially ahead of the broader market catching on.

Lastly, trading penny stocks is characterized by its dynamic and fast-paced nature. With higher volatility compared to blue-chip stocks, investors can benefit from frequent and significant price movements. This offers a lucrative opportunity for those who are well-versed in navigating such environments and possess a higher risk tolerance.

While trading penny stocks requires careful consideration and a clear understanding of the risks involved, these three reasons illustrate why it can be an appealing alternative to investing in blue-chip stocks for some individuals. The potential for substantial returns, the chance to find undervalued stocks before others, and the thrill of the fast-paced trading environment can make penny stock investment a thrilling, and potentially rewarding, venture.

3 Reasons Why Some Investors Choose Penny Stocks Over Blue Chips 

  1. Low Price Per Share 
  2. A Unique Advantage to Find Hidden Gems 
  3. Higher Volatility Could Mean More Gains

Low Price Per Share 

Trading penny stocks provides an alluring opportunity for investors, primarily due to their low price per share. The ability to acquire a larger number of shares for a given amount of capital can be an attractive proposition, especially for novice investors entering the market or those with a more modest investment budget.

The low entry cost associated with penny stocks allows for a wider investor participation, granting access to market opportunities that might otherwise be inaccessible due to higher cost of entry. This low barrier to entry means that individuals can begin building a diverse portfolio without the need for substantial initial investment.

Moreover, the low price per share associated with penny stocks means that even minor per-share price increases can translate into significant percentage gains. For example, a mere increase of $0.10 on a $0.50 stock represents a 20% return on investment. This illustrates the exponential growth potential of penny stocks that can potentially outstrip the percentage returns achievable with higher-priced blue-chip stocks.

Lastly, the low cost per share also provides an opportunity for learning. It allows investors, particularly those new to the market, to gain practical experience without overcommitting resources. This hands-on experience can be invaluable in refining investment strategies and developing a deeper understanding of the stock market dynamics.

In essence, the low price per share of penny stocks can offer compelling advantages, providing an accessible entry point into the stock market, potential for substantial returns, and an effective platform for gaining investment experience.

A Unique Advantage to Find Hidden Gems 

One of the intriguing aspects of investing in penny stocks lies in the unique opportunity they offer to discover lesser-known companies that can grow into profitable ventures. In the vast universe of the stock market, penny stocks often represent firms that are in their infancy or companies that are underappreciated or overlooked by the market. These companies may possess significant growth potential and innovative products or services that could disrupt established markets or create entirely new ones.

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Diligent research and careful analysis can unveil these hidden gems, providing an early investment opportunity before these companies gain wider market recognition. Unlike blue-chip stocks, where information is abundant and market valuation is often reflective of all available information, penny stocks can offer asymmetric information advantages to those willing to dig deeper.

Investors who are successful in identifying these potential outperformers can secure their positions at a relatively low cost, standing to reap substantial rewards if the companies’ potential is realized. It’s akin to uncovering a diamond in the rough, where the initial lack of lustre hides a potentially brilliant shine.

This unique characteristic of penny stocks allows investors to potentially outperform the market and generate significant returns. It places the power of discovery in the hands of the investor, turning diligent research and analysis into a rewarding endeavor. This aspect of penny stocks makes them an attractive investment option, particularly for those investors with an investigative mindset and an appetite for unearthing potential market winners.

Higher Volatility Could Mean More Gains

The world of penny stocks is marked by a key characteristic that can be a powerful draw for many investors: higher volatility. While the term “volatility” can often be associated with increased risk, it’s crucial to recognize that it also offers the potential for increased gains. This characteristic, combined with the low price per share of penny stocks, creates an environment where significant profits can be made in a relatively short timeframe.

Higher volatility means that the price of a penny stock can move dramatically, both upwards and downwards, within a single trading day. These swift and significant price movements can provide savvy investors with the chance to make substantial returns on their investment, much more quickly than is typically possible with blue-chip stocks. In essence, the rapid price swings synonymous with penny stocks present ample opportunities for gain, provided the investor is able to accurately predict the direction of these swings.

The volatile nature of penny stocks makes them particularly appealing to traders with a short-term investment horizon, as well as those who have a keen interest in active trading. Investors skilled in technical analysis, price action, and timing their trades can often excel in this environment.

Of course, successfully navigating this landscape requires a thorough understanding of the market and an ability to react quickly to changes. However, for those who have the skill, the knowledge, and the aptitude to manage these high volatility investments, penny stocks offer an exciting and potentially highly rewarding trading environment.

3 Hot Penny Stocks to Add to Your Watchlist 

  1. Auddia Inc. (NASDAQ: AUUD)
  2. Inc. (NASDAQ: MCOM)
  3. Ideanomics Inc. (NASDAQ: IDEX

Which Penny Stocks Are You Watching Right Now?

Navigating the thrilling landscape of penny stocks offers a myriad of appealing opportunities for investors. Foremost among these is the low price per share, which facilitates an accessible entry point to the stock market. This accessibility can yield substantial returns even with minor per-share price increases, and offers a practical platform for investors to gain hands-on experience and refine their investment strategies.

Furthermore, the penny stock arena provides a unique advantage in the hunt for hidden gems. These are often represented by under-appreciated or overlooked firms that, with diligent research and careful analysis, can be revealed as promising investments before gaining wider market recognition. The ability to identify these potential out-performers early offers the prospect of securing positions at a relatively low cost, and reaping significant rewards as their potential is realized.

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Lastly, the inherent higher volatility of penny stocks brings with it the potential for greater gains. The dramatic price swings synonymous with penny stocks offer ample opportunities for profit for those who can accurately predict these movements. Particularly for short-term investors and those with an interest in active trading, this volatility provides an exciting and potentially highly rewarding trading environment.

By D. Marie

Growing up in the Tri-State area, Wall Street is in my blood. I'm not one to sit and wait, I'm always on the move to find the next big thing and be first to report. I like to focus on any sector that's hot and be at the ground floor of a market boom.

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