Penny stocks may seem alluring, and you’ve likely heard a lot about them and the profit potential they have. But there are a few things you need to know about penny stocks before you go all-in. Here are four quick facts about penny stocks that most investors wish they knew about earlier.
Get the Low-Down on Penny Stocks First
Becoming knowledgeable when it comes to penny stocks is your best defense against all the pitfalls out there. Use this Penny Stocks Guide to get a quick debriefing and you’ll be surprised at what you can learn from just a few minutes of your time.
#1: Penny Stock Scams Exist
One thing to know is that there are plenty of penny stocks scams to watch out for. The old adage that “if something sounds too good to be true it probably is” is applicable here. Be leery of claims made of instant riches without an acknowledgment of a possible loss of capital.
Also, watch out for companies that promise to hold your hand through the entire process or that offer a copy and paste system for success. They often prey on newcomers and try to make everything sound super simple. But you will need to use some of your own brainpower if you want to see lasting success.
#2: You Can Lose Large Sums of Money
When people think of penny stocks they usually assume that because the start cost so little pressure it is hard to lose lots of money. They only focus on the upside, and don’t consider the bad things that could happen with their money. Since it is possible to make large amounts of money in just one day, the possibility also exists of losing large amounts of money in just one day.
#3: You’ll Likely Be In The Dark
The kind of companies you find being traded as penny stocks will generally be ones that you’ve never heard of. You’ll have to be comfortable with not knowing as much about these companies as you would a blue chip stock traded on larger exchanges. You’ll also have to take the information they do provide with a grain of salt, because there will often be no way to fact-check what is being stated.
#4: The Companies Will Probably Be Volatile
One other aspect of penny stock companies is their volatility, with game-changing information coming out regularly. This is exactly what makes penny stocks so intriguing. In just one day a stock can go from zero to hero or vice versa and fortunes can be won and lost in a snap.
Getting comfortable with the zaniness of the penny stock world and learning to embrace it rather than worry about it is part of the fun and can be the difference between success and failure.
Don’t Fear Penny Stocks
Even though there are a few caveats to be aware of before making your first penny stock trade, there’s nothing to fear when you have the right training and know-how. Beefing up your knowledge of the market is one way to allay any fears you have and venture into a new way of trading.