What Is a Penny Stock?
Posted on May 30, 2010
Filed Under Personal Finance | Leave a Comment
You might have heard that penny stocks can be very profitable. But you might not know exactly what they are. Any stock that trades below $5 is technically a penny stock. Realistically any stock trading below $1 is the best example of a penny stock.
The idea behind trading penny stocks is that, if you can buy a stock for pennies right before it shoots up you can make a lot of money. So, all you have to do is go out and find the hottest penny stocks to buy and then hold onto them as they make a large profit.
The low price of the penny stock means it has a large potential of increasing in value, at least this is the idea. A stock trading at $.10 will be affected much more by a small change in the price of the stock then another stock that is trading at $10.
However, there is also a lot of risk when you purchase penny stocks for cheap. First of all most companies that are trading for pennies don’t really have much value backing them. If the company does not make any money then it may just go out of business, and any investment into them would result in a huge loss.
Because of this it is a good idea to only trade with money that you can afford to lose and to do your research on them beforehand. If you don’t it can be the fastest way to the poor house.
So, you are probably wondering How to Buy and Sell Penny Stocks? You can buy penny stocks with your broker, if you don’t have a brokerage account you have to set it up. This does mean that commissions will make it harder to profit from the stock, but it is something that you have to factor in.
Just remember that trading penny stocks is risky, so anything you do invest with should be money that you can afford to lose.
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