Why Trade Penny Stocks?

Trading in Penny Stocks is one of the most exciting ways of investing money. The buzz of watching a stock rise in value from a few pence up to a few dollars or more can be matched by few things. However, by their very nature the possibilities can often be matched by the risks.

These risks and the rewards arise partly because penny stocks generally have a thin market. A stock priced at 10p may rise 50% on good news, whereas a larger blue chip stock will not. Conversely, the penny stocks can fall more sharply than the larger stocks. Its price at any given time may in fact bear no relation to the stock’s underlying value.

Particular volatility may also arise if predators show an interest in purchasing the company. The share price can soar on speculation that there may be a contested takeover bid at a considerably higher value than the current share price, giving all smaller share holders a substantial profit. However, if the takeover does not emerge then the price will quickly fall, often below previous values.

But this is the fundamental nature of investing in penny stocks. It’s all about wading through the masses of shares and pinpointing a company where, for one reason or other, you spot potential. Then there is no beating the success and self gratification knowing that you found your own little goldmine.

You may also get involved in penny stocks because you have a particular belief in a concept or idea that gives hope for a particular company or perhaps in an emerging industry sector. It may even be because you have some kind of insider knowledge which gives you optimism towards the shares future – perhaps it’s the company that a friend, family member or even yourself works for.

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