Some Pros and Cons of Penny stock Trading That You Should Know

penny stock trading, the pros and cons

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Anyone who knows how to trade penny stocks would tell you how others are criticizing this market, they would also tell you how penny stock trading is a risky decision.

Although they’re right but they never talk about the good side of it. I like when someone critics something by giving both the pros and the cons.

I assume that many of you are the same way as I am, that’s why I’m going to give my input on this debate by sharing both the pros and the cons with you.

Without making too long of an introduction, why don’t we just get straight to the point?

The pros that keep us around

Obviously if it weren’t for the pros none of us would’ve chosen to trade penny penny stocks in the first place. But when people are talking about them they usually forget or don’t want to mention the pros.

Let me quickly share a few of them here with you.

Very high profit potential: When it comes to high profit potential investment opportunities you can’t exclude penny stock trading. without the bad sides, it’s an excellent way to invest and make profits.

If it wasn’t the case, given all the bad names associating with the penny stock market, there wouldn’t be a single penny stock investor around. But since there’s a possibility to make lots of money in a short time, penny stock traders will always trade them.

No need for big investment: Unlike the big companies that sell their share for so much money, you don’t need lots of money to buy shares from a penny stock company.

With just a small amount of money you can start trading penny stocks. And the best part is that you can still make some profits if you’re lucky.

One thing to always keep in mind is not to buy shares from those that are selling at under a dollar. Although it’s called “penny stock” it’s not necessarily mean all of them are selling at a penny, if you didn’t know that.

Penny stocks are any stock that’s being sold for less than five dollars a share. Some people refer to shares selling at five dollars as penny stock as well though. But you get the the point.

They’re riskier when they cost less than a dollar, so don’t put your money into them. Start from those selling at a dollar at least instead.

No professionals needed: If you were to invest into a big company you’d have to consult with a professional. It would be too much money on the line not to seek help from those who are the best at it.

On the other hand, you don’t need professionals’ help to trade penny stocks. Furthermore, anyone who’s qualified and have a brokerage account can trade them.

That’s how easy it is to start investing in penny stocks. Very important though, if you don’t know how to trade them yet don’t start without learning the basics.

As risky as this market is you don’t want to jump in and start trading which would definitely result in losses. Practice paper trading if you have to, it’s very useful when learning how to trade stocks.

What about the cons?

Thinly traded: What does it mean when you hear that they’re thinly traded? Well, they don’t have as many shares as the big companies do to trade daily.

You should be able to see a big company like Apple trading millions of shares in one day, but on the other side, the penny stock trading side, you won’t find that many shares being traded daily by one company.

Penny stock companies that are able to trade lots of shares would most likely found to be trading in the thousands of shares, but it’d be very rare to spot one trading a couple of millions of shares. Therefore it’s a thinly traded market.

Huge risk: Penny stock trading is a humongous risk that we’re all taking. Although we all know of the risk that doesn’t stop us from risking our hard earned money.

It’s a perfect example of the quote stating that “Great rewards always entail great risks”. In penny stock trading you’re putting your money in small companies that aren’t proven anything yet.

Although some of them will get to be successful, most of them are usually reach the point of bankruptcy. However, you never know which one will or will not make it, so we’re all just taking chance and hoping for the big gain.

The good news is that many of the big companies that are selling their shares for over $100 today used to be a penny stock.

That means you never know what might happen when you’re trading penny stocks.

They’re being manipulated: Manipulations are big parts of penny stock trading since they’re not regulated as in the case of the blue chip ones.

When it comes to manipulations you’ll find those who are advertising a stock in the hope of having lots of people to invest their money.

Most of them do own shares from that stock they’re advertising, and once they’ve reached their goal, many people have invested, they sell all their shares. This action is called pump and dump.

Knowing the pumps and dumps can potentially save you from losing money. Because when you get caught in a stock that has been dumped, the chance of selling and make a profit is almost impossible.

Shareholders usually lose their money when a penny stock has been dumped with them or when they bought shares from a dumped stock.

Conclusion

This post was to share some of the pros and cons of penny stock trading with you. I chose to share it with you because we’ve heard too much about the cons without the pros.

I hope this post was helpful to you and is able to help you with your decision making. Penny stock trading is risky, so never trade in a rush, always do your homework first.