7 Mind Numbing Facts About Penny Stocks

Penny stocks are low-priced stocks that are not fit for everyone even though they have a lot of attributes. When you invest in penny stocks and they favor you, they might turn you into earning a huge sum of money very quickly. However, for most people, their potential of making significant gains doesn’t always outweigh the risks involved. The best thing for you is, to be honest with yourself and then avoid feeling bad when walking away from the concept. Generally, it could be the best choice for most situations that involve penny stocks and investors that lose money.

On the other hand, there is a good reason why most investors and stock traders spend most of their money and end up losing. The reason is that they buy the wrong stock with the wrong reason and at crazy prices. However, it’s easy to avoid the risks associated with penny stocks. You will need to learn and understand the reality behind penny stocks.

Moreover, when you get involved with high-quality companies that offer the shares on a serious and regulated exchange, then you can make a profit. In the stock market, many companies have a proven business model. However, penny stocks are mostly small and new companies, and that is why they trade for pennies before they reach trading for dollars. You will, therefore, need to invest your money in penny stocks only with funds that you can afford losing. After gaining significant knowledge, it’s time you can get your feet wet with low-priced stocks.

In investments, many pitfalls arise and especially investing in stocks. Ironically, among the most dangerous traps that investors fall prey include the penny stocks. Penny stocks are incredibly cheap shares that allure and trick the people into thinking that they are the best deal ever.

Reality is much different and investing your hard-earned money can send you into poverty. However, here are seven mind-numbing facts that you need to know about these penny stocks:

• 1. Searching For Penny Stocks

The aim of finding the best penny stock is not different from getting an excellent investment opportunity. Among the vital tips that you will need to know is about the inside and out of a specific company you are planning to invest in. When you do that, you can have a comprehensive background understanding of the organization.

On the other hand, the information will help you identify the reason why the company is competitive and will make a sustainable pick.

When you are looking for a penny stock company, the organization might be undergoing the several stages that even the established companies have passed through the same step. For example, these penny stocks could be the upstart of a company with a new or experimental product or even have an innovative production means.

Moreover, a penny stock could be a once highly valued company but falls during the hard times and is on its way looking towards its resurgence. So, the takeaway is for you to do as much research as possible, even if that means calling the company directly to ask questions.

• 2. Hard For New Investor To Get On Penny Stocks

If there is another mind-numbing fact is on the way you can invest or trade penny stocks. All investments are similar, and the key to having success with penny stocks is proper timing. Among the best strategies is to make sure you find a new industry or technology and then identify an undervalued, player and strong in the sector.

When you look at the technology world, many companies are vying to introduce another revolutionary commodity in the market on some existing service or platform. So, you have to find such in the market and then check a suitable player that is operating in the market, and you could get a winning penny stock.

If you want the best penny stocks, check mostly those that are nearing to the hype because of a specific industry’s growth. Avoid getting a surprise by a company that has all hype and allows some excitement that pushes the penny stocks without hurting anyone.

As a new investor, to succeed in penny stocks is difficult because it’s hard to get the information. These companies trading penny stocks don’t require filing any regulations with SEC and therefore not publicly scrutinized. Moreover, most of the information you get is not from reputable sources.

• 3. Penny Stocks Might Make You Lose Too Much Money

If there is a characteristic associated with these penny stocks is their relative volatile nature. However, they can be prey for traders and also run the risks of them collapsing due to market cap, lack of prolonged stability and low value.

When you know the reasons for their nature and are comfortable, then you can confidently invest in them and become your impediment to your future success. However, you have to keep in mind the reason why you want to trade penny stocks. So, let be that you are in penny stocks market to achieve something extra along with your gambling lines instead of a slow and steady approach. It could be a risk and not for everyone, but you have to carry it with inherent promise.

It’s simple to make money with penny stocks, but you can also end up losing too much too. Some of the penny stocks may trade infrequently and becomes difficult for you to sell them after you purchase them. However, it also becomes difficult for you to find information on some penny stocks and therefore difficult to make an accurate decision. It's due to these and other reasons why penny stocks are regarded as speculative investments.

If you are a penny stock investor, you need to adequately prepare your mind that there is a possibility of losing your whole investment. So if you’re trading penny stocks, you can make a ton of cash, but you can also lose your investment. And more if you trade on margin.

• 4. Trading Penny Stocks Doesn’t Cost a Penny

Do you wonder how people trade these penny stocks? It’s something simple. Trading is like gambling, and it bears its risks. It’s safe on the other hand when you want to trade these penny stocks. However, you will need to have essential information so that you can make the profit from selling the penny stocks.

Even though they have “penny stocks” name, they don’t cost a penny. However, the SEC considers any stock that is below $5 as a penny stock. Moreover, most of these penny stocks costs are under specific rules.

• 5. Penny Stocks Can Make You A lot of Money

You can make large gains quickly trading penny stocks. It is among the draws of trading penny stocks. For example, if it will move from $0.1 to $0.5, that is 400% move. It is something that happens. If you bought your shares worth $1000, and then sell them after the rise, you will make over $5000! The best thing about penny stocks is that they can move widely within a short period and therefore among the draws of trading penny stocks.

• 6. Manipulation Of Penny Stocks

Penny stock manipulation is something big and can be manipulated easily. The most prevalent kind of scam associated with penny stocks is a “pump and dump.” The scammers will load up on these cheap and worthless stocks and then convince the inexperienced investors so that they can buy the penny stocks at inflated prices after they sell their shares off after investors push the cost of penny stocks high enough (dump).

The scammers will end up making a lot of money, but the inexperienced investor will lose a lot or everything.

• 7. Penny Stocks as “Micro-Cap” Stocks

The terms “micro-cap” and “penny stocks” are similar because penny stocks are normally micro-cap stocks. Micro-caps stocks are always classified based on the stocks market capitalization and penny stocks defined by stock price. However, the term may vary, but all the stocks trading below $300 million in the market are all micro-cap.

On the other hand, a larger cap is a stock that is trading in the stock market with $10 billion of its market capitalization. For you to calculate the market capitalization, you have to multiply the price of each share by the outstanding shares. However, penny stocks are under micro-cap because they trade between $50 million to $300 million.

Bottom line

When you decide that you want to invest your money trading penny stocks, it's not much different from the other kinds of trading. All the markets have their speculations and therefore same for penny stocks. However, you might have skills in trading forex in a specific way. It’s the same for penny stocks too. If you are interested in trading penny stocks, you need to understand the way they operate.

Getting started with penny stocks can be very intimidating at first. If you’re new I would definitely encourage you to do as much research as possible before buying anything. Read books, watch videos and even join Investors Hangout to get started. Take your time and don’t rush. It will pay off in the end.