There are many reasons why investing in penny stocks (also known as micro caps) makes sense. They are a great option for many people because they are inexpensive to purchase and can realize a high return on just a small move in the stock’s price. Although they are named penny stocks, this does not mean that they are only stocks that sell for under $1. In fact, penny shares encompass all stocks that sell for less than $5.
With micro caps, a very small change in the stock’s price can result in a very large profit for the investor. As an example, you will double your money if you purchase a $2 stock and its value shoots up to $4. With more expensive stocks, an additional $2 increase in the stock’s value may not mean all that much. A $2 increase on a stock that was selling for $70 is a very small increase in value. You can clearly see that a small increase in a companies value can result in a dramatic profit. Price increases such as these are considered normal with these kind of stocks. Because of this, there are many investors who focus solely on this lucrative sector of the market. Penny stocks like this one that make a simple, rolling pattern between two price points are frequently some of the best to focus on. These stocks are very predictable and easy to trade. Just wait for the stock to reach its historic top or bottom and then jump in on the trade. Such stocks are called “rolling stocks” and are very well suited for small cap trading.
Why Are They Inexpensive?
Although penny stocks are very easy to trade and are usually very well suited for the stock trading beginner, there are some caveats you should consider before entering the micro cap market. One thing you definitely need to remember is that although penny stocks are inexpensive, they are inexpensive for a good reason. It could be that the company is still very new and they don’t have a well-established history. It could also be that the company was formally a much-higher valued company that has hit hard times. Definitely take the time to study a penny stock company like how PennyStock Whizzkid does before spending money to purchase their stock. Does the business they are in have long-term potential or are they in a fad market? Do they have a long history or are they a new start-up? What is their long-term viability look like? If things look questionable, don’t invest in that company and you could possibly short sell like this url recommends
Volume – It Matters
A companies trading volume is something else you should consider. In order to successfully buy and sell any stock, you will need sufficient volume to be able to quickly enter and exit a trade. If the penny stock company you are considering is a company that hardly anyone ever trades, it probably does not have sufficient volume to be worth your time. After all, if few people are buying and selling the stock and you need to quickly find a buyer for a trade position that’s going south, what do you do? You’re just stuck. That’s why it’s important to always consider trade volume before investing in any stock, always do your due diligence reading useful websites like this url http://pennystockwhizzkid.com/timothy-sykes-review which is an interesting read.
Watch Out For Scams
There is a popular scam that is perpetrated with cheap shares that you should be aware of as well. It’s called the pump and dump. In this scenario, a person will buy a tremendous amount of low-priced penny stocks and then post a lot of news articles about how great the stock is in an effort to quickly increase the stock’s value. This is called “talking up the stock” and it’s an illegal practice. All of the sudden good news about a particular stock causes people to take notice and they quickly jump in and start buying the stock, causing it to quickly increase in value. The person who is perpetrating the pump and dump will then quickly sell the stock after it increases in value for a quick profit. The large sell-off that follows can result in the stock’s price quickly plummeting. If you see a penny stock suddenly jump in value, you should be suspect of a pump and dump scam.
They can be a great investment vehicle for both new and seasoned investors. Before you invest, take the time to learn all you can about this market and be on the lookout for pump and dump scammers.
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Ever wondered what penny stocks are?
Whoever thought a penny doesn’t go far has never heard of penny stocks. You will be surprised to know that these stocks are responsible for the vast majority of stock trading in the United States every day. But what are penny shares? Why are they hot favorites of both long-term investors and traders?
Penny stocks are stocks that trade for less than $5 per share. In the US, dollar stocks generally refers to any stock trading outside the major foreign exchanges. Many new investors are attracted by these stocks because of their low price and potential for rapid growth.
Micro cap stocks as seen by the entrepreneur:
Let’s take an example to better explain the meaning of small cap stocks to a businessman. Supposing you have a company that sells mechanical devices and everyone owning your device is happy with the quality you provide. You want to sell your device to the entire world, but are running short of cash and cannot manufacture the said product on a larger scale. So, you can raise that money by taking your company public and selling the stocks of your company to the common man.
If you sell your stocks at $1 rather than $10, it has a better chance of attracting the investors towards the company. They will be willing to give your company the benefit of doubt for $1 instead of $10.
Hence, for an entrepreneur penny stocks are a way to make their company public.
Micro Cap stocks from the trader’s point of view:
According to some traders, a dollar stock will mean a stock that trades for $1. Others will have certain categories into which a stock must fit before it is called a penny stock.
But all traders will agree to the fact that dollar stocks have the most potential to escalate in price and bring sizeable amounts of profits.
For traders, a penny stock will mean a stock that you sell as soon as they are in profit because they are too volatile to hold for a long time. In the investment world, the best time to gain money is to seize the first chance of profits the market gives you.
Micro Cap stocks as seen by the investment industry:
In the investment industry stocks are simply opportunities. They are opportunities that can make returns that are unheard in any other type of investment. For brokerage houses, penny stocks serve as a major source of trading expenses. For new and upcoming companies they are a brilliant opportunity to grow and develop.
I hope that this information has answered the question of ‘what are penny stocks?’ There are many small stocks in the market, therefore take your pick and invest wisely.
All penny stocks may not give similar returns. Some penny stocks can give excellent ROI while others might not be so beneficial. While buying penny stocks, remember that they are extremely volatile, this is why it makes sense to sell them when you see their prices going up.
So, to conclude, volatile or not, high risk small cap stocks are here to stay. Why you may ask? Well, they represent an opportunity for traders to gain massive returns in the shortest time periods and brokerage houses they can be a huge potential resource of trading commissions. For fledgling organizations, they provide an avenue of growth. In other words, like it or not, penny stocks are an indispensable part of the great American dream!
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