There are many reasons why a trader may get involved with penny stock.
Sometimes a new investor will want to learn the basics of buying and selling shares, and low-priced investments seem to be a good place to start.Sometimes an advanced trader will get involved in these speculative issues to hedge a position, or play with some risk money. Perhaps you may even have inside knowledge of the prospects and potential of a company you work at, and you would invest in their stock before the business really takes off. Penny stocks are fun and exciting, which is why some people get involved. Kind of like a high-stakes hobby.
Of course, any combination of the above factors can act together to drive people into the penny stock markets. What are your reasons for getting involved in penny stocks?
•Excitement / Enjoyment.
•To make money.
•You have some inside or specialized knowledge that you can profit from.
•You have a strong belief in a concept or idea of a company, you think the stock will explode in price.
•You don't want to miss the boat, while others are getting involved.
•You want to increase your portfolio's risk/reward exposure.
•To learn the ropes of penny stock trading, or just of trading in general.
•You think you know how to pick winning stocks.
•A more expensive stock you held took a price dive, and now you are holding a 'penny stock' unintentionally.
•To increase your portfolio's diversity and exposure to certain sectors.
•For the purposes of hedging strategies.
Are Penny Stocks For Me?
The suitability of penny stocks as an investment vehicle will depend on many factors, and only you can ascertain if they are appropriate for you. Factors affecting your situation will include, but will not be limited to:
•Your risk tolerance
•Your financial and investment position
•The aggressiveness of your trading goals
•Your expectations of returns
•Your level of investment experience
Big Stocks vs. Penny Stocks I
As you review the following differences between "blue-chip" equities and penny stocks, you may be able to see why professional analysts and institutional investors usually shy away from these speculative shares.
The kind of money that the big players use could crack the backs of many of these penny stock companies. There would not be enough volume on the other side of their trades to enable the transaction, because some penny stocks often trade only a few thousand dollars worth per day.
The negative connotation towards penny stocks among financial industry insiders needs to be kept in context. Sure, these investments are often low-volume, inexpensive shares of unproven companies. However, that is the beauty of penny stocks, and is partly why you can acquire such potentially rewarding stocks at such bargain prices.
As well, the lack of institutional interest is one of the keys to our methodology of picking winning penny stocks. Getting involved early, then holding on as the company gets discovered and explodes in price, is partly dependent upon the previously unknown company suddenly gaining interest from bigger players.Speculation
Speculation is based on penny stock companies having lower available information about their operations, minimal revenues, unproven management, and often an unproven product or industry.
