The world of penny stocks has its ups and downs. It’s best to be aware of the good and the bad so that you have a clear picture of what it involves. Here are several pros and cons to help you know whether penny stock trading is right for you.
Pro: A “Ground Floor” Opportunity
With penny stocks it’s almost like you’re getting in before anyone else knows about it. By the time a stock gets popular enough for the average trader a penny stock investor has already made trades and is in and out of the stock for a nice profit.
Con: High Volatility
The way a penny stock can go up and down by relatively high margins is something that most investors can’t stomach. It can be unnerving watching your portfolio grow and shrink by large amounts in the span of just a few hours.
Pro: Low Barrier to Entry
Because penny stocks are priced so low you can get more shares than you otherwise would from a more mature, higher-priced stock. A thousand dollars would buy you one thousand shares of a company trading at a dollar, but only one or two shares of a blue chip stock that’s all grown up.
Con: High Risk
With many established companies the chance for them to go belly-up and for you to lose all of your investment is low. But with penny stocks you never know when a company will call it quits right after you invest in them. This makes them riskier by nature, and many investors will avoid them because of this.
Pro: Fast Profits Possible
If you like action movies you will probably like the fast speed that penny stocks offer. In just one day you can see large gains that you would never see from ordinary stocks. The thrill of making a small fortune in just one day is something that attracts many people to the idea of penny stock trading.
Con: Fast Losses Possible
Just as you can make fast profits you can also experience fast losses in the same amount of time. A seasoned penny stock investor can avoid these types of losses by doing their homework and applying a strategy, but many first-time penny stock investors end up losing the money that they put into it.
Pro: It’s a Lot of Fun!
Penny stock investing can be a lot of fun, especially when you know what you’re doing. When you invest money that you’re not overly concerned about, and see that money multiply in as little as a few hours, it can be addicting. The key is to temper that excitement and stay focused on making steady profits each day, even with a few losses here and there.
Con: Penny Stock Frauds
Because of the get-rich-quick nature of penny stocks, as well as the lack of regulation compared to other stocks, you’ll see fraudulent penny stock scams pop up. Either it will be someone trying to teach you how to trade penny stocks even though they don’t know how to do it, or it will be a brokerage that is rigged.
As you can see, like everything else in life penny stocks have their pros and cons. Make sure you are well-informed so you can have the best experience possible.