Pros and Cons of Trading Penny Stocks
Penny stocks are simply stocks that have a market capitilization of under $250 million. Traders and investors are doubling or tripling their money by trading hot penny stocks.
Although penny stock trading can be a way for a person with very little money to enter the stock market and make a lot of money fast there are some pros and cons that you should be aware of.
Pro: Since 2000 the penny and small cap stocks have outperformed larger stocks in the market. In particular, penny stocks traditionally outperform large caps during a recession and early stages of a recovery.
Con: Penny stocks are usually listed on the Over-The-Counter Bulletin Boards (OTCBB) and do not have to meet minimum listing standards that the larger caps must in order to keep their listings on the major stock exchanges.
Pro: Penny stocks offer a way to make money fast without a major outlay of your hard earned capital. They sell for very little per share, usually under $1. So if you have very little money to get started trading you get more bang for the buck and can lay the foundation for a good second income.
Con: These stocks can be thinly traded and volatile. If you have a fear of risk then penny stocks are not for you.
Pro: Returns of 50%, 100% and 1000% and more in a day even an hour is a common occurrence.
Con: Researching penny stocks is difficult. Traditional technical analysis and fundamentals can provide very little clues to predict these huge gainers.
Pro: Research has proven that 7 out of 10 stocks that do gain 100% or more do so because of stock promotions. These are necessary to get the word out to the public about the company. Some penny stocks are simply small companies working hard to grow their business with an end goal of making it to the larger markets.
Con: It is difficult for the regular investor or trader to tell if the promotion is legitimate or not. Sometimes they involve companies that have a poor business plan, a product that has no demand, and some companies might even already be headed for bankruptcy.
Pro: There are many established e-mail newsletter services that provide the in-depth research that uncovers the hot penny stock gainers for you and that give you all the information and support you need to make an intelligent trading decision.
Con: Without and advisory newsletter service finding the hottest penny stocks takes a lot of time for the average person to sort through all the information and confidently find the stocks with the potential to gain 100% and more.
For penny stock trading to be successful it is advisable to seek out the inside advice of a professional e-mail newsletter service.
These organizations help the traders and investors to eliminate some of the cons of penny stock trading. They provide the critical in-depth research necessary to uncover the most promising penny stocks and free the trader and investor to concentrate on intelligently trading the best stocks for their particular situation.
Learn more about why Microcaps/Penny Stocks Are Profitable
