Advantages Of Trading Penny Stocks
With bank interest rates low, most people who have some savings are looking for the best options for getting a good return on their investment and making their money grow. Investing in stocks has been a popular options for decades. However the share prices for reputed companies like Apple and Microsoft are high, so most people with limited funds will only be able to purchase a few shares of these companies, and the amount of profit they will make is limited. So most people with limited funds are trading penny stocks, and I will dicuss some of the reasons why you should trade penny stocks.
Trading penny stocks is cheap
One of the main reasons for purchasing penny stocks is their low price. They are mostly priced at less than a dollar per share. So a person who has less money to invest in stocks will be able to purchase a larger quantity of these penny stocks compared to other stocks available. Smaller investors will be able to purchase only a few shares of a reputed companies and will make less profit when the share prices are appreciating due to their limited holding.
Trading penny stocks has huge upside
Another reason for purchasing the penny stock, is that it is possible to make a large profit in a small period of time . The prices of the penny stocks are extremely volatile and often fluctuate rapidly, often doubling in a few days. Especially if some positive news is available about the company. Since the investor has a large number of shares of the penny stock, he can sell the higher priced shares and quickly make a lot of profit. This is unlike the shares of reputed firms which are more stable, are not likely to increase or decrease in value significantly over a shorter period of time.
Trading penny stocks may cause you to find that diamond in the rough
The third reason for preferring to invest in penny stocks is that the company may be under valued in the stock market due to negative news or factors beyond their control like natural calamities. Over a period of time, the company may recover allowing the investor to make a good profit. Also many penny stocks may be well run companies making a profit, so investors can expect the stock price to increase.
Trading penny stocks can also be risky
However it is advisable to take certain precautions while investing money in penny stocks. The investor should research the history of the company and also the penny stock before making a decision and only invest in firms which are well run, and have been in business for a reasonably long period of time. The prices of a penny stock are likely to increase if the business is being acquired by a larger company, so the investor should keep a close track of all news related to the business. It is also advisable to book profits regularly when the share prices increase, as there is also a possibility that the share prices will decrease over a period of time.