Penny Stocks – Worth The Risk?

Is day trading penny stocks the direction that you really want your investment activity to head toward? There are a lot of investors who are cautious around penny stocks and with very good reasons. The reality of penny stock trading isn’t that of the legends where a trader will get lucky on there first stock and make masses of money, many traders lose loads before they come across a stock that will pay anything back.

Investing in penny stocks is a notoriously risky business allowing you to either reap massive wins or sustain massive losses. Lots of people become inspired to try their hand at day trading penny stocks when they hear stories of investors winning big in just a few days, what they don’t hear is that many of these investors then went on to lose it all shortly after.

Penny stock trading is nothing more than gambling in a nice suit with a respectable haircut. It is true that some investor’s have made lots of money trading in penny stocks, but they know exactly what they are doing. The reason for penny stocks volatility is simple, the companies who are selling their stocks for less than $1 are in this state for a reason.

The company is in this position because of bad management choices, bad economic factors or a blend of the two. Which means you should have a good reason for believing that the company will pull a turnaround or else you will lose your money.

Penny stock day trading is risky because all these stocks are extremely vulnerable to change and it doesn’t take a lot to affect these investments. For example, you buy into a company for 25 cents a stock and then the stock price rises to 50 cents, you’ve doubled your gain quickly. This can also happen the other way.

A 25 cent swing is nothing t sniff at when it concerns your normal stocks, but when it applies to your penny stocks this can make you a lot of money or lose you a lot of money. This means that you should learn how to spot companies with a great potential to turn themselves around before enter this fast paced world.

This is something to think about: many of the world’s top investors didn’t get to where they are by investing in the penny stocks. Instead of investing in companies that are doing well, you are investing in companies that have shown that they can’t do well in business. Some businesses do manage to get their acts together, but for each one that does there are more that don’t and miracles don’t happen everyday.

It is not only enough that you know which stocks are about to pull a turnaround, you will also need t know when it is best for you to buy the stocks. It is not impossible to make money via trading penny stocks, but you need to know what you are doing and be able to monitor your stocks closely at all times.

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