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Penny
Stocks: High Risk, High Reward
Penny
stocks, which only trade for $5.00 or less per share, are
a high risk stock that most people are advised
to avoid due to the fact that the companies have either
in great financial risk or even on the verge of bankruptcy
("going concern basis"). Penny stocks tend to fluctuate
rapidly in price but some penny stocks should a gain in
days, possibly
even in hours. So, basically, the decision to invest in penny
stocks is strictly the choice of the investor because, according
to statistics, you have more of a chance of losing money, but,
there are those times when penny stocks seem to pay off rather
quickly.
The
main reason to buy a penny stock is because you hoping
for a high return. Because they are cheap, most people are
able to purchase quite a large number of penny stocks, thus,
if you receive a high return on your investment, you will make
a considerable amount of money. For example, you buy 100,000
penny stocks for at $0.10 each, which means you invested a
total of $10,000. You decide to sell your penny stocks for
$0.40 each, which means you just earned 4 times what you invested
and gained a profit of $30,000. That is quite a return on your
investment! Therefore, the key to purchasing penny stocks is
get in and get ahead of other investors before they learn about
the high returns that certain penny stocks are capable of producing.
In order to ensure that the penny stocks you are planning
to buy virtually guarantee a high return of investment, be
sure to look for companies in which their sales are
steadily growing because this means that their profits are steadily
rising, too. Also, invest in penny stocks only if the company
has an honorable executive team in which expansion is one of
their main priorities, that way, you can ensure that a certain
company will stay in the stock market. With all these characteristics
in place, a solid business foundation is established, therefore,
an increase in the price per share of penny stocks is almost
inevitably going to increase.
Another important aspect of penny stocks is to buy
them when the company is new and in the early stages of
business development,
especially if you feel the company is going to have great success.
Think about when Microsoft was just starting out and they sold
penny stocks for $2.50 per share. What if you had bought 100
if those penny stocks? The money that you used to purchase
your penny stocks was actually used by the Microsoft corporation
to help them expand their business. Thus, due to the fact that
Microsoft has exploded into a large, corporate entity, your
penny stocks would probably be worth thousands.
With penny stocks, it is all about timing and the expansion
of the business in which you purchase your stocks.
Please remember that penny stocks are a major
high-risk investment,
meaning that the chances of you earning a return on your investment
are slim to none.
There
are four main reasons for this high risk. First, information
about companies who are selling penny stocks is hard to locate,
and when information does arise, the sources are usually very
unreliable. Penny stocks also do not fulfill the minimum requirements
to remain the stock exchange. This is the reason penny stocks
are offered by less reliable sources than the stock market,
because such a large financial entity does not want the responsibility
of liability. Because many of the companies who sell penny
stocks are brand new companies, they do not have a history
of investment in which an investor can review. Plus, penny
stocks have no value, unless by chance the business becomes
a large, expanded company that is able to issue a huge return
on investment. Therefore, it is vitally important to review
both the positives and negatives in the case of penny stocks
before making the decision to purchase them.
Penny stocks offer the ultimate gamble when it comes to stock
trading. Penny stocks are extremely cheap to purchase and they
have a small chance of delivering an extremely high return
on investment. But, more than likely, penny stocks simply are
a high risk investment gamble in which you lose money. # # # # # SolveYourProblem.com : 2007
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