Investing in penny stocks – is it worth the risk?

By: Jhoana Cooper
Investing is something many people have turned to in order to make some money on the side. Since stock trades are now the most viable solution for investing a sum of money into something potentially profitable, this is a path many have undertaken.

I believe that most people know what stocks are. A company can be characterized through its total assets minus all of its liabilities. A stock represents the portion of that result which is held by a shareholder at a given time. Stocks can be more or less profitable, depending on the efficiency of the company and its ability to return profit for each dollar that was invested into it.

The companies included in the stock trades market can be divided in two categories. Large companies, with high quotations are traded in the major exchanges like New York Stock Exchange, National Association of Securities Dealers Automated Quotations or American Stock Exchange. These are the places where people with significant income can play around, because the transactions reach incredible sums.

But for other people that try to enter this market with a relatively low investment there are other options like the penny stocks market. This implies greater risks from the investor’s point of view, but great risks can involve great rewards.

If you wonder what penny stocks are, let me try to explain. One of the first conditions that must be satisfied is the low price of the stock, which is under 5 dollars. The market capitalization of the company must also be under 500 million dollars.

If an investor that is searching for a quick solution to enter the stock trades market with a low amount to start with, then penny stocks might be the answer. However there are some things you should consider before you make any investment.

The potential to make incredible amounts of money in a relatively short period of time is indeed one of the most appealing factors that draw investors towards penny stocks. Because of the low listings, any change in the prices can result in hundreds of times the initial investment. Some people may become rich over night if they make the right choices.

On the other hand, there is also the possibility to lose all your money. One of the reasons for this may be due to the lack of potential buyers, which can result in good theoretical earnings, but if there is no one to buy, they stay theoretical. There is also the chance for the stocks to plummet, which will result in great losses instead of great earnings.

The penny stock trades market requires little documentation from the companies listed and therefore it is a little difficult to gather information on the company you are looking to invest in. These companies are small trying to make it big or they could be lacking in cash.

One of the best solutions you can hope for is trying to find as much information as you can and always consult your financial advisor. Since the Internet is one of the best sources for information, this is the place you should start. One of the best websites for this can be found at speculatingstocks.com.

Trying to find the companies that are worth investing in on this stock trades market can be a difficult task. Whether the risk of investing in penny stocks is worth taking or not is entirely up to the investor, because it can be risky or rewarding.