Three Penny Stock Basics to Know Before Trading

samtheguestblogger By samtheguestblogger, 23rd Jan 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/2ryq1tfx/
Posted in Wikinut>Money>Investing

Many people invest for their futures in the stock market. All kinds of companies, even those that started small, have gone public, as they say, and offer shares of their company to people who want to invest and (hopefully) see their money grow.

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Penny stocks may be a good option for those individuals that don’t have a lot of capital to invest initially, but would still like to experiment in the stock market. As with any financial decision, it is best to first discuss your options with a professional before making any big moves. Penny stocks are risky and require due diligence on the part of the investor to ensure a positive outcome. Here are some basics about the process that may help you decide if this investment style is right for you:
• Definition: A penny stock, which may also be referred to as a micro-cap stock, is available for purchase at a low cost from companies that haven’t grown enough to go public and be traded on the NYSE or NASDAQ. Because they trade from pennies to a maximum of $5 per share, they are an investment option for people without a lot of capital.
• Risk: Trading penny stocks poses a higher financial risk than traditional “blue chip” stocks that are traded on major exchanges. It can be hard to determine the best penny stocks because there isn’t a lot of public information available about the companies that sell them. That’s why it’s important to research any available history on the company’s stock performance. Also be careful when comparing the data to that of other high performing companies; often times a large, successful company’s stock performance may have seemingly started at penny stock prices, but in actuality with historical splits these companies started at a much higher share price. Beware of scams in this trading game, they run rampant with this type of investment. One expert cautions potential investors to read the disclaimers before the success stories to understand the real risks involved.
• Reward: The term “with great risk comes great reward” quite accurately applies to trading penny stocks. Working on the assumption that the company is trading low because they are growing (not failing), your small investment could bring you big financial success. The potential to buy several shares with little money and get a big return is the number one allure of penny stocks. People can make a lot of money this way, but it’s important to do a lot of research and make smart decisions. It is usually wise to sell your penny stocks quickly if the price per share rises, it may be your only option to receive a profit as the price doesn’t always continue to rise.
What has your personal experience been with penny stock trading?

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Investing, Money

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author avatar samtheguestblogger
Sam is an avid blogger that loves to share information with his readers that will apply to their daily lives.

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