There is a lot of hype around penny stocks and you might be wondering why. There are a couple of different reasons from my standpoint, especially early traders or investors. They get attracted to penny stocks because of the potential. These are the two main concepts:
The Get Rich Mentality
People believe they can find that one penny stock that skyrockets and they can make a tonne of money resulting in a great life or lifestyle.
Unfortunately, this is more difficult than it seems. You have to be more consistent with your picks. This can be profitable, but they are traded a little bit differently. However, it’s not to say you can’t make money trading penny stocks.
These people often burn out and collapse their accounts without knowing what they are doing from the beginning rather than putting the effort into learning.
Lacking the Capital or Portfolio Required
Some beginners who invest in the stock market usually don’t have a large portfolio sum or capital amount. They assume because they don’t have a large portfolio, they should trade more of the smaller stocks that they can buy thousands of shares of. Often times this doesn’t work out, so be careful what you are trading.
There are a handful of traders doing well with penny stocks. If you are able to capitalize on the manipulation and are able to be quick in the transaction, you can do just fine. You need to put the study time into it. Take some time and energy and put it into your education to learn and gain a solid foundation.
You might decide penny stocks aren’t for you and you want to trade the larger stocks. You need liquidity to get in and out of stocks and penny stocks don’t allow you to do it. With more research, you can find the best strategy for your portfolio.