If you’ve been thinking of getting started with trading stocks and securities, but you don’t have a lot of money to spend from the get-go, then you might have considered penny stocks. For the uninitiated, these are essentially the stocks and assets available for a lower price than most securities. You may be able to access a penny stock for less than $5 per share.
For many traders, the idea of low-priced investments can be very appealing. Who wouldn’t love the option to get in on the ground-floor prices of the next major company, after all? From time to time, it’s absolutely possible to find yourself with a security that gains a great deal of money in a short period of time – however, that’s rarely the case.
Penny Stocks are a Question Mark
Ultimately, a penny stock is categorized by the SEC as something that trades for less than $5 per share. However, the truth is that many of these securities are largely lacking in information to offer. Indeed, the biggest threat of trading low-cost shares is that you’ll be dealing with a relatively new company that has almost no prior trading information to share with the market.
Since the best way to make money in the trading world is to research a company’s history and make informed decisions based on what you learn, penny stocks are often seen as highly risky. Even as they do begin to earn a position in the market, some over-the-counter trading environments will allow penny stocks to trade without sharing any financial information, which means that you’re throwing money into the unknown.
One of the easiest ways to protect yourself from the dangers involved with this kind of trading is to make sure that you only invest in stock exchanges that are regulated by the SEC, like the NYSE for instance. However, beyond that, it’s difficult to know for certain whether any low-price stock is a good idea. Like any other kind of investment, you’ll need to examine the marketplace carefully and make selling and buying decisions based on what you know about your industry.
Should You Invest in Low-Cost Stocks?
Venturing into the unknown is a very risky proposition in the investment world. Generally, although penny stocks appear to be a good idea for people with smaller budgets who want to keep their costs low, the truth is that they’re only recommended for those who know their way around the marketplace and understand how to avoid risk as much as possible. If you don’t mind taking the risk that you could lose everything you spend on a bad decision, then a low-price share could be a powerful way to make an exciting new investment in your portfolio.
There’s potential to make money in almost any kind of stock investment – whether you’re only paying a few dollars for a share or not. The key to success is making sure that you don’t rush into any buying decision without the right strategy and a good exit plan. Have a strategy laid out for your penny stock investing and stick to it no matter what – that’s the best way to keep your investments secure.