Penny Stock Trading Is For Losers?

Is penny stock trading for losers? Penny stocks are highly speculative investments and anyone who has lost money will cry foul. Though this investment vehicle is not for everyone, penny stocks can add fuel for high growth to a diversified portfolio.

There is an element of risk in all investments. The collapse of “companies too large to fail” in the fall of 2008 reminds us that even “blue chip” stocks are not guaranteed securities. While it is true that penny shares are one of the riskiest investing alternatives, they also offer potential exponential returns. It is not uncommon to see returns in the hundreds or thousands percentages. Understand that you cannot pick stock winners all the time but as long as your gains exceed your losses, your money will grow.

The most basic definition of a penny stock, also referred to as a “micro cap” stock, is a stock that trades below $5 per share. These shares are highly volatile and making money trading requires high volume plays. Traders will get involved with micro cap stocks for different reasons. Novice investors are attracted to the low investment required and see it as an opportunity to learn the basics of buying and selling shares. Sophisticated investors may use them for hedging purposes. Intermediate investors may just want to increase their portfolio’s risk/reward exposure. Whatever the reason, any of these investors could be aptly labeled “losers” only if they did not perform due diligence before laying down the cash.

Whether investing in penny shares is suitable for you will depend on various factors such as your risk tolerance, returns expectations,investment experience level, and financial and investment position. It is unfair to broadly claim that penny stock trading is for losers. From the perspective of the savvy trader making a lot of money, it’s actually for winners!

By: shinyumi

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