Many small investors are interested in investing in the penny stock market, but are unsure of how they should proceed. Because they do not truly understand the penny stock market, they are afraid of making mistakes through ignorance and losing their investment. Fortunately, it is easy to learn the fundamentals of trading in penny stocks and the things that you can’t learn through the books will be quickly learned through experience. Here are some of the things that you should know about investing in penny stocks.
According to the Securities and Exchange Commission (SEC), a penny stock is a stock that is sold as low priced shares of a small company. These stocks rise and fall in value based on the value of the underlying company, just like traditional stocks. The biggest benefit of purchasing a penny stock is with the prospect of making significantly more than the initial investment within a short period of time by buying stock in a company that becomes well-known in the future. However, some investors make the mistake of increasing their shares of penny stocks to the point where they are a dangerously high percentage of their portfolio.
A Wide Range Of Stocks Available For Purchase
When investing in penny stocks, there is a wide range of different stocks to choose from. For example, the Australian stock market has stocks from a wide range of industries ranging in price from very cheap to costing hundreds of dollars for a single share. It is important for potential investors to research and obtain accurate information on the companies that they are considering investing in so that they can make an informed decision on the best types of stocks to purchase for themselves. Researching the underlying companies before purchasing any stocks ensures that savvy investors can avoid those that are too risky for their portfolio.
Investors that invest in penny stocks are assuming more risk than the investors that purchase the more expensive stocks that are traded on the major stock exchanges. The companies that trade their stocks as penny stocks are at greater risk of bankruptcy or closure if something goes wrong because they have less capital to call on in the event of a catastrophic incident. On the other hand, there is also a chance that these companies could do very well, earning the investor a significant return on their investment.