As the name suggests, penny stocks are stocks which are valued in pennies. However, there are some amongst these which may value up to dollar but nothing more. The biggest advantage of these stocks is that the bigger players keep away from these making ways for those with limited amounts to invest to try their luck. If you belong to the category of limited amount investors, penny stock investment is probably the best option to opt for.
Let us compare both penny and normal investment with a small example. Suppose you buy 100 shares of a company at the price of $100 per share thus investing $10,000. In future, if the amount share value increases to $101, you would get $10,100 as return with a profit of $200. This is a mere 1% profit. On the other hand, if you buy 20,000 shares of a stock priced at 50 cents and the value increased to 70 cents in the future, the return is $14,000 with a profit of $4000. As you can see, by investing the same amount in both areas, the profits are more in the case of penny stocks. However, remember, this holds good for small investments only.
An important factor to look into while trading with penny stocks is because large numbers of stocks can be bought for a limited sum, the transaction volume is very high and so is the volatility. As a result, if a peak is witnessed, it would be witnessed only for a few minutes after which the graph would come down to average. Thus, it is required for the investor to be on an alert at all times and act accordingly.
It goes without saying that as an investor, you would be required to do your homework and be firm with the statistics. Compared to usual trading, a penny stock investor would be required to recheck his math before making a decision. Being in touch with what is happening in the industry and what the company plans to do next is very important. Not to forget that having a sound strategy in place would be very beneficial. Investing in stocks is like visiting the casino. Center tables are the high stake stock game (usually played by the biggies) whereas the slot machines are where the penny stock investors play. Both are equally alluring but players of both games can land up dejected at the end of the day. Keep a figure in mind and if that figure is reached, pull out before a graph sees a plunge. There is no place for emotions and that includes excitement.
A major advantage of penny stocks is that there is not much width for the graph to move in. Because of this, even if the stock prices reach rock bottom, they would soon emerge, a problem that is pretty prominent otherwise. As a result, an amount invested in penny stocks is more secure comparatively. If you want to make instant money, this is the right place for you to invest in. Even the bigger players are advised to invest at least 5% – 10% of their amount in penny stocks to make profits.