Introduction to Penny Stocks
As someone without a lot of capital, deciding where to start investing your money can seem like a hard & daunting task. Despite it’s questionable history, based on films such as The Wolf of Wall Street, penny stocks have been some of the base creators of a lot of investors today. Although there is no official definition, a penny stock is any stock that trades for under five dollars on the stock exchange. Wait, Isn’t five dollars a small amount of money for a stock? Yes it is, and that’s the reason it is easier to arbitrage off of the profits on this.
Obviously, with any level of ease in the stock market, Penny Stocks are complimented with a level of risk that is almost unprecedented in most parts of the stock market. The often history of the low-quality companies that are traded on exchanges like OCTBB and Pink sheets lack enough financial history to able to accurately determine their capabilities. Their low market demand leaves a lot of room for investors to manipulate the stock prices, which can also prove to be a trap for a lot of inexperienced investors, but like finding anything that is worth it, Investors have to sift through all these troublesome stocks in order to strike gold.
The inconsistency in financial records and accounting books for penny stocks may be enough to raise red flags for the average investor. The intelligent investor, would know that this also makes it easier to find undervalued stocks that are days away from being completely in-the-money. Due to their relatively small size, They prove to be a method in which investors can double or even in some situations triple their investments in a number of days. The risk will mostly be based upon the amount of research done on the stocks. It is important for investors to be wary though, prices can fall just about as quickly as they rise.
Notwithstanding their dicey past, The disadvantages should not discourage you from investing in penny stocks. The outcomes will be based on the amount of due diligence and research done by the investors. They may not be as lucrative as find the next large growth stock for the novice investor, but they can definitely prove to be a great tool in your portfolio as your investment income increases over time.