Penny stocks are low priced stocks that can sometimes cost a penny or even a few dollars. Usually they are stocks that are under $1.00 but most define them as stocks that trade under $5.00. These stocks do not trade on the Nasdaq or the NYSE but over the counter. There are a few reasons why these stocks are so low, but they can potentially be very good buys.
One reason why penny stocks are so affordable is because they represent a financially troubled company. You will want to ignore these stocks as they usually have a Q at the end of their ticker symbol. It is normally a waste of time to look at these kinds of penny stocks.
Another reason why penny stocks are cheap is because some are new companies just starting out. While something new and unproven can be risky, they can also represent huge opportunities. If you know the product or service they are selling is good, and that the management is good as well as the market place, you are taking a lot of risk out of the equation. Microsoft was once a penny stock and look at it today. The stock started off at a few pennies and throughout the years split so many times that the beginning investors in the company who had just a few hundred shares ended up having several thousand!
If you have enough money in your account penny stocks are a great way to spread your assets. Nobody knows which company may be the next Microsoft so only use a small percentage of your portfolio for these kinds of stocks. You can make a tidy profit on many penny stocks even if they just increase by a few cents.
One of the best ways to begin in the market is with penny stocks as you only need very little to invest in them. If you can increase your assets on a regular basis trading these stocks, you have more potential to start trading the bigger companies and more risky ventures. There is potential to lose all your money in penny stocks so never put all your eggs into basket when it comes to this kind of investing.