Understanding The Basics of Penny Stocks

You’ve heard the term “penny stocks” floating around before, and the promises that they’ll make you lots of money. But, what actually are they?! How can you make all of this money and get involved in the penny stock world? It’s quite simple in some ways, and complex in others. However, we’re just going to take a very basic look at what they are and what they’re used for. You ready? Let’s go!

What Are Penny Stocks?

Firstly, you need to understand what penny stocks are. Basically, they’re a term for low-priced stocks. Anything under $1 used to be classified as a penny stock, although that has changed in recent times to include anything under $5. Because of their low-priced nature, they can be fairly risky to get involved in if you don’t know what you’re doing. That doesn’t mean you shouldn’t, but you need be on your game to make good profits out of them. They are often utilized by growing companies who have limited money to spend. When implemented successfully, they can be a fantastic investment.

Photo by Steinarhovland
Photo by Steinarhovland

You can buy penny stocks in the same way that you’d buy normal stocks. Simply go through your normal stockbroker to get them. Sometimes you can get into confusing scenarios where amounts under $5 aren’t traded under the name of penny stocks. The problem is that there is no specific definition for a what penny stock needs to be. Don’t worry about that for now, though.

What Are The Positives?

Penny stocks often wildly fluctuate, so that $1 that you put in could quite easily turn into $100 with very little effort. Of course, you’re going to need the right stock to do this, and that’s not always easy to find. Scour the internet and join social media groups that help each other with this task. You’ll need as much as knowledge as you can get if you’re expecting to make a profit off of penny stocks. If things go really well, companies can potentially jump from penny stocks to power stocks; it’s happened before.

What Are The Negatives?

The biggest negative is the same with any stock investment; risk. Penny stocks are admittedly a much higher risk than usual, mainly because of low liquidity. Penny stocks often trade infrequently, so sometimes it’s actually difficult to sell those shares once you own them. Ultimately, this leaves you with useless shares. Again, the key is to find the right stock. You’ll also find that a lot of companies continuously spam you with emails about penny stock, and you need to be aware of the dangers. Don’t fall for silly marketing spiel that sounds too good to be true.

So there you go! Penny stocks are a high-risk venture, but can pay off fantastically well with the right amount of knowledge and luck. For those who are still making their mark and growing their business, they can be of huge help. They’re not for everyone, but if you like the sound of them, get out there and start investing!

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Santiago

I've got so many tattoos and you know what? I'm still scared of getting them. Oh, and I love writing about the weirder stuff in life. You'll see.

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