The general stock market contains tons of risks and the usual question flooding many people’s minds is whether penny stocks are appropriate for them.
The answer to that question largely lies with the investor.
Penny stocks have two sides of the proverbial coin. One where investors made huge profits and the most common one which is how people close to you lost a fortune in the stock market.
1. Penny Stocks are Extremely Volatile
Soon after the air crash in Ethiopia, Boeing’s share price took more than a 7 percent beating. This goes to show you just how unpredictable and volatile the stock market can get.
For penny stocks, the risks are double.
This is because they represent new companies in various sectors and are prone to various industry factors. On the other hand, since they are new, they come with vigor and present a splendid opportunity for investors to make lucrative profits should the company break through the glass ceiling.
As you can see, there’re both sides of the coin in penny stock investing. Which is why you must conduct your own research to find out whether you’re fit to swim in these depths. Chances are you’ll come to a familiar conclusion.
These thinly-traded and low-priced stocks are for you.
However, you can always consult your financial advisor but prepare for the same outcome.
2. You Can Follow the Right Path
While your financial advisor may offer you heartbreaking news, you can still go into penny stock investing by following the right path. This includes knowing the risks associated with penny stock investing.
Such risks include investing in low-quality and riskier companies which form more than 95% of the total companies out there. If you dig through, you may just find a diamond in the rough and increase your chances of landing lucrative profits.
In addition, there’s a high chance of coming across stock promoters who are only interested in their pockets. These selfish liars will strip you of your money and make profits from them while you languish in agony.
Once you’re aware of these risks you can formulate strategies to avoid losses. It’s not all gloomy in these stocks, these small companies can grow into gigantic multinationals. As the company grows, so does its shareholders.
3. Learn Your Trade
In any business, it’s important to add to your knowledge base to ensure you manage the business as effectively as possible. Penny stocks are no different.
You can do this through paper trade which is investing in stocks using virtual money. This way, you can watch from the stands how the stocks play out without having to worry about your money. After understanding these stocks, you can choose whether you want to invest real money.
If you decide to dive into penny stocks, remember to always maintain sanity by keeping your emotions in check. This will help you avoid making impulsive or rash decisions. At this point, you’ve seen the good, the bad and the ugly side of penny stocks. However, similar to other businesses, it’s important to do your research before dipping both feet. Happy investing!