Buying and selling stocks is a fundamental part of any investment portfolio as it is a great way to diversify your assets and minimize or spread your risk. If you’re actively involved in stock trading or have an interest in the sector then you may have heard of penny stocks as well as their pros and cons. Traditionally, Penny stocks are those that trade under $1.00 due to a variety of reasons such as belonging to a new company or one in distress. As such, there is risk attached to trading penny stocks but when done right, there are also many advantages.
With that in mind, see below for some of the advantages of trading in penny stocks as part of your investment portfolio:
Affordable Price and Lower Investment Costs
The attraction of quick returns and big paydays often draws many people to stock trading but with the risk inherent in penny stocks it’s always wise to proceed with caution. Nowadays the term Penny stock can refer to any stock that is trading at up to even $5 a share, which usually reflects an up and coming or lesser known company’s stock. Penny stocks can also belong to companies that are struggling. And this is the first advantage of trading in Penny stocks; their affordability makes trading in them more accessible to anyone wishing to invest.
For investors on a budget, the low price of penny stocks makes it possible to make investments without tying up large amount of money in a single transaction. In addition, the low price also means that you are able to purchase more shares while ensuring you do not lose much should the company you’re investing in goes under.
Better Return on Investment
A good way to look at penny stock trading is the fact that if the price of a share is low that gives you greater opportunity at getting better returns on your investment. In terms of legitimate company’s penny stocks will usually belong to those in their growth phase, meaning their value can go up. Likewise, a company whose shares are trading as penny stocks may be not performing well but has the possibility of reaching its previous heights should things improve.
As a result, buying shares in penny stocks can offer potentially better returns on your investment in comparison to the higher priced stock of more established companies.
Added Benefits to Your Investment Portfolio
While volatile, trading in penny stocks also has added benefits for your investment portfolio. In general, stocks are considered to be long term investments, but penny stocks are highly subject to change and as such lend themselves to short term investment. Penny stocks can therefore help to diversify your portfolio while also making it possible to improve your liquidity.
It is possible to make money fast with penny stocks but as with any other investments its worth putting in the time and effort into learning about the practice. Likewise, it’s also important to understand the companies whose shares you wish to trade as much as possible to minimize losses. As volatile investments, penny stocks offer much more risks but also have the potential to bring those brave enough big returns.