Get Rich Trading Penny Stocks

Many investors wonder if it is possible to get rich trading penny stocks. The answer to this is that while it is possible, it is also highly unlikely. Let’s take a look at what penny stocks are and how they are traded. To be considered a penny stock, a stock must cost less than $5 per share. Often these stocks are from new companies who are virtually unknown by many investors. The opportunity to make money from penny stocks comes when these companies grow and substantially increase their earnings, thus causing the price of the stock to rise. However the same type of companies might also go under, in which case you would lose money.

Penny stock trading is not for the faint of heart, you must be willing to take on a high amount of risk as these types of stocks can be very volatile. One reason they are so risky is because often, there are no reports detailing the performance of a company, especially if the company is new. So, the investor has very little information to go on in some cases. Regular stock trading is less risky because companies have reports and prospectus documents that help investors make more educated decisions regarding whether or not to invest.

The majority of penny stocks are traded in a manner called ‘over the counter’ which means they are bought and sold between two traders instead of via a broker. Something else you should know is that just because a stock is less than $5 it does not mean it is a penny stock. When the economy is down, even large companies can have their stock prices drop below this level. Penny stocks are those from small and often new companies, and the name of the game is speculation. Also, penny stocks can change in value several times in a single day. For this reason, some day traders put their focus on penny stocks.

For example, let’s say you are looking at a stock that costs $0.30 per share. In one day, this stock could change in price multiple times. It might dip down to $0.20 or $.016, or it could rise to $0.35 or $0.40. These are merely example figures and not based on any type of stock or trading. The point is, penny stocks can go up and down like a roller coaster in a single day. So, if you are interested in trading these types of stocks, you should be prepared to watch your investments carefully throughout the day as you want to buy when the stock is at its lowest and sell when it is at its highest. This can be very difficult to predict.

With this being explained, you may wonder why anyone trades these stocks in the first place. It is because they are lured by the possibility that they might get rich trading penny stocks. In the world of penny stocks, when gains happen they can be fast and dramatic. This is what can make an investor a lot of money. However this upswing can quickly be followed by a drop. Trading penny stocks is a lot like playing the lottery. The majority of buyers are going to lose, while a lucky few will hit it big. Even so, the world of penny stocks can be quite interesting for investors.

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