Back To Top

Trading Critique

Stocks

Advantages and Disadvantages of Penny Stocks

TC_advDisadvOfStocks

What are Penny Stocks?

More than thousands of people switch on their computers in the hope of making money through penny stock online trading. The Securities and Exchange Commission (SEC) defines penny stocks as those stocks priced at $5 or under. However, most of the trading community agree ‘penny stocks’ are any stocks that are traded on Over-The-Counter-Bulletin-Board (OTCBB) or pink sheets.

Advantages of Penny Stocks

  • Minimum Capital – You will be buying shares in pennies, so you don’t need to invest large capital to start investing.
  • Availability – The stocks are available for the public to invest in. The low-cost capital allows investors to buy as much as they want. If you do good background research or industry analysis and manage your investment wisely, you can have higher profits on penny stocks investment.
  • High-Speed – Most of the traders prefer penny stocks because of their high volatility. Penny stocks move at quicker intervals. If you have 1000 shares of penny stock which is trading at $3 and the value just got doubled in overnight, then you’ve very easily doubled your returns.

Disadvantages of Penny Stocks

  • High-Risk – Regardless of the cheap price, penny stocks hold extraordinary risks due to their low liquidity. Higher the profit, Higher the risk of losing all investment.
  • Low-Quality Companies – The penny stocks are issued by small companies or start-ups. So if the company is near to bankruptcy then the entire investment can be lost in one shot.
  • Scams – “Pump and Dump” scams are quite popular in penny stocks where people promote the stock to increase the demand, lead to an increase in price. As a result, that stock will crash and the only ones who take benefit are the ones who purchased the stock before the scam.
  • Selling – It is exceedingly difficult to sell large quantities of penny stocks due to their liquidity.

As a final note, whatever type of stocks you trade-in, it is important to completely know about those stocks. This will increase your chances of winning your stock trades.

Do you think investing in Penny stocks is profitable or not? Give your answer and experiences with trading in Penny stocks in the comments section below.

To understand the basics of stock trading, you can read our article on Stock trading: All you need to know about.

If you have any doubts about stock trading, you can ask in the comments section. Our Trading Critique experts will answer it. If you have any personalized questions, you can ask your questions here. To get regular updates from tradingcritique.comSubscribe to our Newsletter.

I (68)
Investing
TradingCritique_57

What is an Index Fund and How to Invest in? [Expert Guide]

An index fund is a collection of investments that follows the performance of a group of companies or a market index. For example, the S&P 500. It is like a large basket of investments that mirrors the performance of these selected companies. Instead of choosing individual stocks, the fund follows preset rules set by companies like S&P Dow Jones Indices.

Read More »
I (65)
Investing
TradingCritique_57

Best Retirement Plans for Small Business Owners 2024

Small enterprises can attract seasoned and skilled candidates by providing straightforward, dependable, and adaptable retirement schemes. Certain types of plans can even provide tax benefits. Here, we will explore the different types of retirement plans available to small businesses and how to establish them.

Read More »
I (64)
Forex
TradingCritique_57

5 Steps to Trade Forex in USA 2024

Foreign exchange trading involves exchanging one currency for another. By profiting from fluctuations in exchange rates between currencies, forex traders aim to generate returns on their investments. It operates 24 hours a day as currencies are traded across time zones.

Read More »
I (63)
investment
TradingCritique_57

What is SIP and How SIP Investment Works?

Systematic investment plans offer a systematic approach to investing that allows individuals to invest a fixed amount of money in their preferred investment instruments on a regular basis. SIPs have several benefits including steady investment, versatility, the possibility of dollar-cost averaging, and the opportunity to start with small amounts of money.

Read More »
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
Table of Contents