What are Penny Stocks?

Penny stocks are shares that trade from a fraction of a penny to $5. They are usually (but not necessarily) trade for low valuations (P/E) and has great volatility and carry more risk. Penny stocks have the potential to give exceptional returns in a very short time for those daring, high-risk taking, knowledgeable and well-informed traders. Being lesser in prices than the regular stocks, it provides the investor with an opportunity to own them with ease. Penny stocks, unlike the other stocks, are traded in the over-the-counter market and not in a stock exchange. Benefits if Trading Penny Stocks: Trading penny stocks can be exciting, yet just as the volatility of a low priced stock can increase share value, it can also be responsible for the decrease in value. These swings in stock price can be profitable, or they could also be risky – causing investors to lose money. It is imperative to know what you are doing before becoming involved in trading. However, the benefits of trading penny stocks overshadow the risks like the volatility of the share & lack of corporate transparency involved in trading it.  The upside of penny stocks is the ability to turn a small investment into a fortune. With penny stocks, you get more bangs for the buck. You can turn a few hundred dollars into thousands, just by getting in on the right stock at the right time. Trading penny stocks is a great way to learn about the markets, without risking a lot or over-committing. At the same time, there is a lot more excitement and potential for rewards, because these fast paced investments often make great moves in short time frames. Strategy: The best strategy in case of buying penny stocks is to minimize the risk & to plan your exit having decided your expected profits. Do not just pump and dump the stock for reason that it costs you less than other stocks and will reach very high levels one day. Conclusion: Because investment is low and the risk high, penny stocks have been often labeled as nothing more than a beginner's game. Done well, however, and in quantities large enough to make a difference, you can still earn and show a profit.
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