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How do I know if penny stocks are right for me?


Sam Button

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Trading in penny stocks continues to grow in popularity, but what has made the stocks so popular in the 21st century and how will you know if they’re right for you? Based on the Securities Exchange Commission definition a penny stock is any equity trading below $5. Many of these companies are new or could not establish a solid track record. They are speculative and come with more risk than the equities that trade on major exchanges.

Trading Penny Stocks for Beginners

We love rags to riches stories, and the massive gains possible in penny stocks is fertile ground for them. Because the stocks are so cheap you can invest in huge blocks of them and make good profits when they increase by just $1 or even less. But how do you know if trading penny stocks is right for you? Penny stock trading attracts some novice investors who end up losing all their investment capital. Data shows that only 10% or less of penny stock investors end up with a profit. The rest are just handing their money over to the successful traders. Penny stocks are volatile and unpredictable. There is a good deal of manipulation that occurs in this class of stock and being a trader requires nerves of steel. You also need a short-term outlook to achieve success. The profits made in penny stocks are typically captured within days or weeks, or not at all. Do you think you can bear such risk and unpredictability?

In Conclusion

It’s obvious trading penny stocks isn’t for everyone, but it could be for you if you have the risk tolerance and the ability to react quickly to changing situations. It’s also helpful if you can recognize shady situations and scams since those are fairly common in the penny stock universe. If you feel you have the skills and mindset to trade penny stocks, why not give it a try. You’ll want to get a good education first, especially in how to recognize good penny stock opportunities, and how to avoid the scams. Then get in the market and you’ll know once and for all if trading penny stocks is for you.
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