What is Penny stock?

Penny stock is stock that is traded at a price below 1 USD. Most penny stock are small companies and the stock are usually very volatile. Penny stock are very high risk investments and a large percentage of all these companies fail and if that happens any investment will be lost.

There is a common misconception that penny stock are cheap because they have a low price. This is not true. The price of each share has nothing to do with whether a stock is cheap or not. A lot of penny stock are very expensive and there are a lot of regular stock that is a lot cheaper.

Whether a stock is cheap or not depends on what you get for you money, the value of the stock. Not the price of the stock. A Stock that trades for 10 000 a piece can be cheap and a stock that trades for 1 cent can be expensive. It all depends on the company that issued the share.

How does it work?

Buying and selling penny stock work just like buying and selling regular stock. You need an account with a stock broker to buy penny stock. If you have an account you can easily buy and sell penny stock by browsing to the stock in question in the trade application. Once you found the stock you can enter how many stock you want to buy and at what price. The stock broker will try to buy the stock for you and if they succeed then they will be added to your account. If you want to make sure to get the stock you can chose to buy them for any price. If you do this then the broker will buy the cheapest available stock right away. This guarantees that you get the stock but not the price. If you set a maximum purchase price then you guarantee the price but are not guaranteed to get the stock.

The process to sell the stock works in a similar manner.

Can you earn money?

Yes you can earn money trading penny stock. It is possible to get very high returns if you are able to chose the right stocks.

Penny stock trading is however a lot more high risk than regular stock trading and it is harder to make money than it is when dealing with regular blue chip and dividend stock.

Who should trade ?

Penny stock is only suitable fore investor who have the time and skill to analyses them carefully before they buy them. If you want to add penny stock to your portfolio then you should always dedicate a small amount of your money to this. I do not recommend investing more than 10% of the total value of your portfolio in penny stock.

Is it a scam?

No penny stocks are not a scan. They are no different than other types of stocks. Penny stocks are however often used to perpetuate different types of scams such as pump and dump scams. Penny stocks are usually exposed to less scrutiny than lager stocks and improprieties is a lot more common among penny stock than in other types of stocks. The risk of getting scammed is higher if you trade penny stocks than it is if you trade with regular stocks.

Make sure to do your research before you invest in penny stock.

Do you recommend?

Penny stock are high risk investments and a lot of them are doomed to fail. I do not recommend that you trade with them at all. Especially not if you can not afford to lose the money they invest. Most traders who invest heavily in penny stock lose money. Not all penny stock are bad or will cost you money. But it does require a lot more skill and effort to be able to make money from penny stock than regular stock and I therefore recommend that you stick to regular stocks unless you are certain you have what it takes to become successful trading penny stock.