Benefits of Buying Penny Stocks
Just like with other types of trading, there are benefits of buying penny stocks as well as pitfalls. In this article I will point out some of the positives.
For a quick refresher, these types of stocks are basically "low priced" stocks, which can vary in description based on what you are reading or whom you are speaking with.
The U.S. Securities and Exchange Commission considers "Penny Stocks" those generally trading under $5.00 per share. Others consider under $1.00 and yet still others use $10.00 as an upper threshold.
You may even see some people using market capitalization figures in determining whether or not a particular stock is classified as a Penny Stock to them. Which ever method you are using, these are typically low-priced stocks that can be a cause for extra precaution to traders and investors.
As far as some of the benefits, there can be quite a few, if you prepare yourself to take advantage of the opportunities that come about.
- A stock trading at very low levels may be doing so because it has been a non-performer in the past. If things change within the company and begin to look bright for it's future, the once low prices can skyrocket.
- Many Penny Stocks and Pink Sheet Stocks get "Pumped" (the company pays a stock promotor a fee for "advertising" the company with the hopes of boosting it's share price). While this method usually wears off quickly once the advertising budgets fade, learning how to recognize these situations and take advantage here can produce a profitable trading strategy.
- Low-priced stocks getting "pumped" can be taken advantage of both to the upside as well as for potential shorting opportunities to the downside.
I'll be discussing some of the pitfalls in an article over the next few days as well. Learning about both the benefits AND the pitfalls will help you understand what you're getting into a little more, and is highly recommended. Learning only about the benefits and getting started without learning about the pitfalls would be like learning to ride a bike and not learning how to stop if the need should arise (I know).
A great teacher who provides training material to take advantage of the benefits of buying Penny Stocks as well as shorting them, including items such as DVD's, videos and his actual personal trade alerts via a subscription service is Timothy Sykes - Penny Stock Trainer.