Risks involved with trading penny stocksĪlthough penny stocks offer trading opportunities, day traders have to realize that reaching their ambitious goals will require more effort and probably take much longer than initially anticipated. This simple example makes the appeal of penny stocks quickly evident. If it does, your 1,000 shares are worth $100,000. You look at the $100 stock and imagine your penny stock getting there. This thinking is deceptively appealing and can wreck otherwise logical and sane individuals. If you choose the penny stock and the price jumps to $1 per share, you investment will have doubled. If you purchase 10 shares of the stock that is priced at $100 and the price soars by $1 per share, you will have earned a profit of only $10.
You are weighing two different choices – you can purchase 10 shares of a stock that is trading for $100 per share, or you can buy 1,000 shares of a penny stock trading for $1 per share.
If you decide to buy one stock with all $1,000. You can’t deny it - the math on owning these stocks is psychologically attractive, particularly for inexperienced traders.įor example, imagine that you have $1,000. Penny stocks are viewed as a way to get rich because they tend to have high percentage returns. Why penny stocks are viewed as a way to get rich In most cases, these companies are usually in industries that are perceived by some market players as carrying strong growth potential such as precious-metals mining, medical marijuana, fuel-cell development, and biotechnology. Penny stocks are generally floated by tiny companies that have low market capitalizations. These stocks are often traded in less regulated over-the-counter (OTC) or “pink sheets” markets, but also trade on listed exchanges like the NYSE and NASDAQ. Securities and Exchange Commission, a penny stock is any stock that trades at or below $5 per share. Stories of stocks gaining of over 5,000% in just a short time add to their appeal, and advances in trading technologies make it easier than ever to jump into the market.īut what are they and can you get rich off penny stocks? What are penny stocks?Īccording to the U.S. Tempting day traders with the prospect of significant financial gains and a low cost of entry. Penny stocks are where a lot of new traders start their career.
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