Penny Stocks

The Gist of Penny Stocks

There are two things that trading Penny Stocks are very much known for:

  1. You can quickly make a big amount of money.
  2. There is a high probability that you will lose a lot of money.

These are two opposing extremes that you will be facing. Of course, your objective is to rake in serious profits. Unfortunately, the majority of the people who trade Penny Stocks fail to make any positive return at all. But do not be discouraged because there are still people out there, the well-experienced and real expert traders who doubled, tripled, and continuously growing their money more than you can ever imagine.

Losing a trade is normal. Even well-experienced traders make the wrong investment decisions from time to time. However, you must avoid such mistakes as much as possible. Now, in order to help cut down your potential losses, you should be aware of the risks that you will be facing when you trade Penny Stocks.

The Risks

Small Companies

Majority of the companies in the Penny Stock market are small companies. In fact, they can be so small that they do not even meet the minimum capitalization requirement. You will find many of these companies on the Pink Sheets. Since they are small companies, it is hard to tell if they are stable enough and if they will even grow. Many small companies also tend to be less professional.

Start-Up Companies

Many of the companies that issue Penny Stocks are start-up companies. Therefore, they tend to have a very limited history that you can track. This makes it risky because you would not know for sure if the business is legitimate or if the company is operating a scam.

Less Transparent

Penny Stocks do not have stringent requirements. Remember that the companies on the Pink Sheets are not required to file with the SEC to meet the minimum capitalization requirements.

Many companies on the Pink Sheets only reveal very limited information about their business, so it is hard to get sufficient and accurate data. Worse, some companies operate a scam.

Bankruptcy

The Penny Stock market is not only participated by small and start-up companies, but it also has companies that are about to go bankrupt. Unfortunately, these struggling companies will not reveal that they are already about to declare bankruptcy and will even make their Stocks look like an attractive investment. Of course, there is still a probability to make a good amount of profit when you invest in a company that is struggling to survive, especially when the company is able to save itself from bankruptcy and begin to grow successfully. However, the probability for such an ideal scenario to happen is rather small. Trading Penny Stocks is already risky enough; you would not want to take more risks.

The reason why you should not invest in a company that is about to go bankrupt is because you will run the risk of losing everything. Once the company declares bankruptcy and does not have sufficient assets to cover all its debts and obligations to its creditors, you will not be able to get a single cent back.

Low Liquidity

Penny Stocks have low liquidity. With low liquidity, they become open to manipulation. A common type of fraudulent scheme is the pump and dump, in which the value of certain Penny Stock is pumped up using some fraudulent marketing hype in order to convince traders to buy them. In turn, traders will find the Stock attractive and make an investment. The Penny Stock is then dumped on the traders and their value begins to fall down.

Do take note that the pump and dump scheme can be applied even if the company is actually doing well. In fact, when the company is making profits, the pump and dump scheme will be harder to detect. By adding a few dollars on the price of certain Stocks that are already increasing, it is almost impossible for traders to determine whether the increased total value is due to legitimate means or merely a result of a pump and dump scheme.

Speculative

Due to so many factors that affect the prices of Penny Stocks, it can be said that the Penny Stock market is highly speculative. An important thing in trading Penny Stocks is to first buy the Stocks that truly have a good value. Unfortunately, with the increasing number of scams and frauds out there, it becomes difficult to know whether you are really purchasing a good Stock or merely a Stock whose value is being pumped. Secondly, even if you get to buy a profitable Stock, there are many active factors that can affect its performance in the market. The best Stock today may no longer be considered a good Stock by tomorrow, depending on the circumstances. Also, granting that the prices of your Penny Stocks increase, will the buyers still see them attractive and profitable by the time you want to sell them?

These, among many other things, are the risks faced by traders of Penny Stocks. Consider also the sad fact that most traders fail to make any profit and simply lose their investment.

Do you think you are up for the challenge? If your entrepreneurial spirit is not crushed by these risks, then get ready for the awesome benefits of trading Penny Stocks 

The Benefits

Trading Penny Stocks is one of the best investment opportunities that offer wonderful benefits. So, if you honestly think that you can manage the abovementioned risks, then welcome to the world of high profits — a place where you can double, triple, or even multiply your money by more than 20 times in a short period of time.

Price

Penny Stocks are cheap. A single Penny Stock only costs less than $5. If you have a lot of money to invest, then you can have thousands of Stocks from different companies. If you are on a shoestring budget, then this opportunity is also available to you.

High Potential Return

When you trade Penny Stocks, there is a potential to multiply the value of your Stocks many times over. In fact, there is a potential for the prices of your Stocks to double within 24 hours or less.

Unlike blue-chip Stocks where a 60% increase is considered a big profit already, such is considered normal when you trade Penny Stocks. And, unlike binary options where you can gain 90% but has a much higher risk, trading Penny Stocks can make your money grow by more than 500% within a short period of time. Also, since the Penny Stock market is mostly composed of small businesses, there is a high probability for the value of their Penny Stocks to grow, since small businesses have a lot of space for improvements.

High Volume

You can have thousands of Penny Stocks for a small amount. Having a high volume of Penny Stocks is good, especially if you get them from a start-up company that is doing well.

Low or Controlled Risk

Penny Stocks are inexpensive. You do not have to purchase a lot of Penny Stocks to earn a decent amount of profit. You can also diversify your Stocks to help minimize your losses. And, unlike trading binary options where you will lose your whole wager when you make a wrong investment decision, you can still keep your Penny Stocks and sell them. If you are patient enough, there is really no such thing as a permanent loss. Considering the volatility of Penny Stocks, even if the value of your Penny Stocks decreases, there is a good chance that it will increase after some time.