Investors looking for stocks with potential that require a low investment amount often find penny stocks to be an option for them. Although there is often a small investment required, they can potentially be a higher risk than other stocks. Learn more about these types of stocks and why you should start investing in them to round out your investment portfolio.
What Are Penny Stocks?
Image via Flickr by stockcatalog
In a nutshell, a penny stock is a stock that has a much lower price than a share in a more expensive stock. They may not actually cost a penny a share but are usually under $5 per share. Their low cost is both positive and negative.
Penny stocks are stocks offered by companies that are typically having financial issues, such as potentially having to file for bankruptcy, or are much smaller companies. They are usually not as well-known as other publicly-traded companies with high stock prices. Penny stocks are often considered to be high risk due to these factors, but proper research into the companies can help to reduce that risk.
Why Invest in Penny Stocks?
Investing in penny stocks is often beneficial to new investors that are looking to learn how investing works as they don’t require a large amount of money to start investing in them. These beginner investors can experiment with penny stocks before graduating to more significant investments. Making mistakes with a penny stock when your financing is smaller can help to reduce your risk.
Penny stocks also offer the potential for investors who don’t have a large amount of capital but are looking to expand their portfolio. They can increase their portfolio with a small amount of money. Investors can use their available capital to purchase stocks from several companies to help spread around their risk.
In addition, investing in penny stocks can be an excellent way to invest in start-ups, smaller companies and companies that are looking to make a come-back. Investors putting their money into these types of companies can feel good about helping in these scenarios. Plus, in the long-run, the investment may result in a substantial return.
Where Can You Find Penny Stocks?
Penny stocks are also called stocks under $5, small caps, microcaps, and other names. These stocks aren’t traded on the New York Stock Exchange. Penny stocks are found on over the counter markets, also known as OTC. Not every brokerage firm will offer penny stocks to their investors. However, many online brokerage platforms will often provide these types of stocks as an investment choice for their clients.
There are several reasons why you should be investing in penny stocks. They offer a low threshold in investing in a company so investors can increase their portfolio or experiment with the market. Penny stocks often have a terrible stigma attached to them, but with proper research and investment strategies, they can be an added value to your portfolio.
0 Comments