When someone mentions penny stocks, the very term implies cheapness and low returns. Yet with a little knowledge, research, commonsense and luck, penny stocks can be a profitable purchase for investors old and new. What exactly are penny stocks anyway? The most basic definition is any stock trading for five dollars or less. Unlike stocks traded on the so-called major markets (NYSE, AMEX, or NASDAQ) these types of stocks are traded ?over the counter? using quotation services such as the ?Pink Sheets? and the OTC Bulletin Board.
Because of their low prices, these stocks offer promising, yet less risky opportunities for first time investors. For those who are new to the market, the low prices of penny stocks provide a safer way for the less experienced to learn the market and make their beginner mistakes without risking large sums of money. One of the advantages of these stocks are that even if one makes a bad investment, the low price means the potential for substantial losses are limited.
Each of the stock exchange markets list penny stocks, which makes them easy to find and easy to track. Unlike some investment options, there is nothing complicated about buying these stocks because they are sold as common shares. Yet despite their low cost, low risk and easy availability, they can sometimes give surprisingly high returns on your investment. The businesses behind these stocks are often newer start-up companies, so if they take off they can grow with amazing speed in a manner seldom seen by older, more established firms. While naturally this doesn?t happen to every stock, when it does the chances to make solid profits can be exceptional, with significant price increases occurring often within a short time.
On the other hand, what goes up can also go down, and these are no exception. Picking the winners can be as challenging in these stocks as it is in any other financial investment. But risks can be minimized by making penny stocks only a part of a diverse investment portfolio, and because of their low prices, chances for major losses are not as much a concern as they are with the major stocks. As always it helps to do a little research before buying, and local magazines, newspapers and business blogs can contain information on firms that can help to identify the promising up and comers. Also never underestimate the value of a hot tip!
So with low prices, easy availability, reasonable risk and high potential earnings, the advantages of stocks are many. That is why so many investors make penny stocks an important part of their overall investment strategy.
Joann Carlisle is a writer who looks forward to sharing her knowledge and advice with readers. For more on penny stocks, Financial Planning and Investments offers readers tips for penny stock investing.
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Source: http://dividendpaying-stocks.com/the-advantages-of-penny-stock-investing/
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