For those just entering into the world of online stock trading, penny stocks offer both rewards and risks. For beginning investors, they are attractive since they are affordable to purchase and trade. Also known as “micro cap stocks,” the Securities and Exchange Commission (SEC) designates any stock that is priced less than $5 a share a “penny stock.” If you have only a little capital to invest initially in the market, you may find that these stocks provide an important entry into the world of online stock trading. With only a $100 investment, you can trade hundreds of micro cap shares, while with normal online trading you may be fortunate if you are able to purchase one or two shares for the same investment. If you have little money to invest and are interested in learning how the world of online trading works, these affordable stocks are an excellent place to start.
However, investing in these stocks is not without risk. Since many companies offering micro cap shares are quite small in size or have only been formed recently, there is frequently little information available publicly to help you decide whether they are a secure investment or not. Penny stocks are also not as strictly regulated by the SEC, meaning there is the possibility their price has been artificially inflated. This may be the result of companies paying individuals to make positive recommendation on their behalf, and investors will need to be able to carefully distinguish between those offerings which are just hype and those which represent quality investments.
Because of the risks involved in penny (or micro cap) stock investing, careful scrutiny of these stocks using a well formulated investment strategy is necessary for anyone entering into the world of micro cap stock trading. Still, because of their affordable price, these stocks are often more accessible for beginning traders making their first online stock investments. With the proper research and tools, many find that the penny stock market is a lucrative and rewarding market.