Penny stocks are a gamble, so winning or losing is never guaranteed. Investing in penny stocks is only a good idea when you have spare cash, which you can afford to lose. There is nothing wrong with trying your luck, though it would be unwise to dive in blindly. Many people declare penny stocks as an awful and chancy investment, which isn’t false. On the other hand, trading penny stocks has proven to be a shortcut to massive wealth for several investors. It is safe to say that earning huge profits from penny stocks is possible, but it requires profound understanding of the market.
Penny stock investments have turned people into millionaires over a short period of time, yet it has also driven many individuals to file for bankruptcy. If you are planning to put your money in penny stocks, it is vital to acknowledge the potential risks and benefits:
Pros of Investing in Penny Stocks
Penny stocks are shares of small and undiscovered companies that are priced at less than five dollars. Several of these companies, who offer shares for literal pennies, possess serious potential to flourish. Their business is built on a solid foundation, proper management teams exist, finances are stable, and the product/service offered is not just in demand, but also competitive in more than one ways. The only obstacle is the lack of exposure and no affiliation with highly ranked corporations. Buying penny shares that belong to such startups can convert a small investment into big returns.
Another advantage of investing in penny stocks is the speed at which the market fluctuates. The value of shares can increase several fold within days, rather than months or years. Even a small percentage increase is exciting, whereas no profit or slight loss is not a very big deal, unless you went all out betting on the small fish. As mentioned earlier, the rules are similar to gambling; penny stocks are fun as long as you are aware of your limits.
Cons of Investing in Penny Stocks
Unfortunately, an unambiguous majority of penny stocks is generated by low quality or fake companies. These companies are often in a bad place financially, so much that their balance sheet could give you nightmares. Another case scenario is that the business operations are continually failing and the merchandise is only adding to the losses. Some of these unknown businesses have dubious products, which are either not up to standards, or their market has already perished. When you take a chance on penny stocks, expect to lose more and win some.
The majority of individuals who have tried to make penny stock trading their sole source of livelihood have left with less money than what they brought to the table. Penny stocks traded by renowned exchange organizations like New York Stock Exchange are a safer bet, although brokers usually charge a commission. The big names in the stock market require companies to fulfill certain criteria and reporting procedures, which ensures that they are the real deal. However, most penny stocks are listed on places like Pink Sheet and OTC, where principles and regulations do not exist.