We cannot even begin to say how often potential investors come to us, to ask that age old question; "Are Penny Stocks Risky?" Or better yet, the question of why to even bother investing in penny stocks, when there are companies out there that are worth far more.

Well first of all, yes, penny stocks are risky investments but then again we have to remember that all investments in the stock market are risky. Regardless of how secure an investment may seem, there is never a guarantee that things will work in your favor and it also reigns true that the price of a stock, does not necessarily give way to reasoning as to whether or not a company will fare well as an investment. The heart of the Recession was a perfect example of this with the American economy, which proved a time period in which some of the highest priced stocks listed within the stock exchange saw steep declines and became penny stocks, literally overnight. This steep decline reminded investors that the so called safety of the big board exchanges, truly is no more than a belief system, as opposed to a tangible thing.

With these things said, though all stocks are risky investments, penny stocks are the riskiest aspect of the stock exchange.

Why Are Penny Stocks Riskier than Higher Priced Stocks, listed on more highly Tiered Exchanges?

A major aspect of the risk of investing within the Penny Stock Exchange, is that the companies typically see far less dollar volume trading, then companies do that are listed on exchanges like the DOW, NASDAQ, NYSE, and the AMEX. Due to there being less dollar volume, it becomes far more difficult to safely trade large sums of money. A great example of this would be trying to sell $1 million worth of a penny stock, versus $1 million in a major corporation like Google. If a company is trading at 1 cent a share, it is highly unlikely that you will have enough buyers to purchase your shares because the penny stock exchange commands less dollar volume. By the time you were able to sell out, you may find yourself ending up with far less than you had initially expected. Because Google has a substantially higher amount of dollar volume per day, your sell order would likely be executed with little trouble by eager buyers, allowing for a much sturdier footing when moving forward and likely far more money than you would have left with doing the same with the $.01 stock.

If it's harder to sell large dollar amounts in the Penny Stock Exchange, why bother buying Penny Stocks?

The main lure of penny stocks, is that they are so low priced that it is easier to pick up large amounts of shares and as a result of low pricing and possibly well managed share structures, penny stock movement often tends to be far greater than the movement that one would manage to see in a company trading on the big board exchanges.While a 20% gain over the course of a year, would be huge for a large corporation, the percentage gains seen in penny stocks have often been far greater and within shorter spans of time. About 4 months ago, we released a play that saw gains of 186,000% within three days time. That is the sort of gain that you just will not see on larger exchanges. It is the possibility of making fast money that most greatly entices Penny Stock investors because the percentage gains on those that do gain, is so much greater.

 

 

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