The Pros & Cons of Investing in Penny Stock Trading

0
The Pros & Cons of Investing in Penny Stock Trading
The Pros & Cons of Investing in Penny Stock Trading

For some, starting a business is a frightening and scary step. Undoubtedly, investing your money in something new is difficult but exciting at the same time. You never know what to expect and how to react in business-related situations. Some people like to learn and grow through small steps. That is why they choose to invest gradually in their business. People like to start their businesses by investing in cheaper stocks or inexpensive material. It keeps them at a lower risk of loss and hope for higher returns.

To start any type of business, a person should be well aware of its pros and cons. The first and foremost step is to collect as much information as you can so that you can make big profits and will be less tensed related to the risk factors of it. In this way when the business will grow strategically and things will go according to plan, there will be a higher expectation of returns and profits.

Stock Market Investment:

Stock market investment is considered as the long term investment, it comes with its own advantages and disadvantages. Most people are not able to make money on their expected time, because the prices of stocks are volatile. But in the longer period of time, stocks outperform all other investments. It is historically proven that the stock market provides the highest profits and returns related to any other assets. Investors who have high-risk tolerance make the most of this opportunity by investing in stocks and demanding higher rates with patience. Just like long-term bond pays more than the short-term bonds, stocks tend to return more too.

The process of investing in stocks and then holding them for long period of time to sale them out in the market is by far the best idea on how to invest in the stock market. This strategy of holding the stocks until the rates become higher is very advantageous. Because of this reason, the investors need to be patient with the process as well as tolerable.

Stock market investment also revolves around short-term processes, but this process has more risk involved in it. The increased chances of losing all the money and stock are also higher in the short-term investment. Its because most of the time the market is unstable as the value of stocks could go down in a short time so if you will not sell them at the right time, they’ll be of no value and you will need to keep them longer. Most people are unable to keep stocks for a longer period of time with them because they take loans from banks that they have to pay on time.

Penny stock trading is no different than any other stock trading. People invest in it the same way, but the mistake most people make is that they don’t gather any knowledge. Their lack of information leads them to a loss in business.

In this article, we will discuss the pros and cons of investing in penny stock trading.

What is a Penny Stock:

Penny stocks are the cheapest stocks in the market, just like their name. A stock that is traded by a company through electronic transactions and pink sheets in less than five dollars, are considered as penny stocks. These stocks are not at all costly and only revolves under five dollars only. Penny stocks are also known as one-cent stocks. To invest in penny stocks, a person must buy a lot of them in order to get higher benefits. But just like a short-term investment, penny stocks are usually high-risk investments. Small companies with small balance sheets and limited facilities are the ones that invest in penny stocks.

According to research, it’s incredibly beneficial to invest in penny stocks but at the same time, it is substantially risky as well.

As mentioned above, it is important and highly recommended to collect all the information before starting a new business. So to help our readers, we’ve described the advantages and disadvantages of Penny Stocks below:

Advantages of Penny Stocks Trading:

  1. As the rates and prices increase of penny stocks in the market, it is preferable to invest in them. It is considered as a wonderful opportunity to gain profit in a short period of time. Example: A person buys 4000 shares of stock and the stocks are being sold at 2.00. Then if the rates are increased by 2.00 more, his investment will have doubled to 8,000.
  2. Another great benefit of penny stock trading is its low price. There is no need for larger amount to invest in anything.
  3. Easy and quick availability of penny stocks that are also very inexpensive is a major advantage. In this way, investors have the chance to buy a lot of them at once to sell them however they like, in the long term or short term. It means, once the investment is done on a higher level, then the investor does not need to worry about any more costs.
  4. Most of the time a penny stock becomes a mid-cap stock which means its market value is increased several times than it was before.

Disadvantages of Penny Stocks Trading:

  1. There are higher chances of losing all the money invested in the first place. Not having patience and not making smart decisions can also lead to a major loss in all the investment. These chances are higher because it’s easier to buy stocks but equally difficult to sell them.
  2. When the investors get the penny stocks from bankrupt companies that create them, it again increases the chance to lose all money.
  3. The investors need to get the proper information from the company before dealing with them. Companies that do not maintain any track record or possess balance sheets or company registration are scammers.
  4. People do not buy penny stocks when the rates are higher. As penny stock trading is known to everyone, people notice when the prices will increase and decrease.
Disclaimer: The views of authors published on South Africa Today are their own and do not necessarily represent the views of South Africa Today. By viewing, visiting, using, or interacting with SouthAfricaToday.net, you are agreeing to all the provisions of the Terms of Use Policy and the Privacy Policy.