Are Penny Stocks a Wise Investment?
The traditional notion of purchasing stocks includes using a brokerage and putting your cash in well-known firms that are classified as blue chip stocks. Though, within the last three years or so or so, buying penny stocks has taken The U.S. by storm (along with fx trading). They’re more popular than ever, but should you purchase them?
Small cap stocks are shares of stock that are available for mere cents. Typically they’re shares of stock in small companies that are publicly owned. The exact definition of penny stocks is unclear. Some consider these to be stocks that cost less than $1, but some institutions consider shares that cost less than $5 to be penny stocks. At this particular level, it can be hard to identify penny shares because typically these are stock shares in businesses that have small market capitalization; thus they need your investment. Additionally, they fail to appear in the key stock exchanges. Rather they’re bought and sold via over the counter strategies and on some institutions such as NASDAQ. At $5 for each share, it is possible to locate shares that belong to large capitalization companies that are openly traded in the primary stock exchanges.
Why are people fascinated by making an investment in cheap stocks? To many people, purchasing penny stocks may seem like a bargain. Because they cost so little, you can buy up a great deal of stock shares for a meager amount of money. This is in contrast to acquiring shares in blue chip corporations, which cost 100s, and maybe even thousands for a single share. It is really an interesting option to small time investors who do not have that much money to invest in stocks with.
Micro cap stocks are highly speculative. You really don’t have a clue how the corporation will perform because it’s typically a small or newly established corporation. That means that buying or selling shares of stock can decrease or increase the stock price substantially. Massive purchases of shares can quickly push the price up. That can equate to massive profits for the buyer. For example a $300 per share with a blue chip corporation needs to gain another $300 to double your investment. A penny stock that you just bought for 50 cents merely has to reach $1 before your investment is doubled.
Many start-up firms buy and sell over-the-counter at Pink Slips or the OTC Bulletin Board, which in turn lend them some trustworthiness and enable them to acquire traders. If you’re diligent enough to investigate these organizations, you may be able to pick out appealing start-ups and purchase them before they grow. Suppose one of those is the next Google or Apple inc?
Buying pink sheet stocks could be a high risk endeavor. Since these stocks tend not to show up in the big stock exchanges, there is certainly little regulation and oversight on these stocks. In penny stock trading, you do not have true reporting and disclosure requirements established in trading over the counter.
Since these are little firms, usually they are not liquid at all. They only have a small cap structure, plus they require your money to grow. However, they don’t have a well-known history. You don’t really know if these companies will be able to make a profit. Quite a few penny stock organizations fold and then leave you broke if you aren’t capable to quickly get out.
As a result of limited regulation, it isn’t difficult for fraudulence to take place. Usually top penny stocks tips can be found in newsletters as well as other web pages, but what you don’t know is that these are operated by folks who buy stock, and they push them by telling you to invest. Once you along with other investors buy them, the value will increase and these people will sell them, making large amounts of money.
Pink sheet stocks can be a good way to get started learning about trading, but you must only spend a small percentage of your stock portfolio. Possibly commit no more than 10% of your portfolio to penny stock investing and do your homework. Study these organizations and sign up for stock tips that trustworthy financial journals consider as respectable.
Only put money into penny stocks if you have the time to frequently monitor them since they fluctuate wildly. These are very short-term trades, and you could possibly buy and sell them within a day. And the most critical lesson is don’t be greedy. You do not want to target too high of a return. If a share you obtained at 20 cents show a current value of 24 cents, that’s already a 20% increase. Your best bet is to sell that and don’t speculate whether it will get to 30 cents.
Have you invested in penny stocks? Do you presently have penny stocks?