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How To Invest In Hot Penny Stocks

Updated on December 28, 2012

Just A Penny!


What Are Penny Stocks?

Investing is widely recognized as a good way to prepare for the future. One of the many ways to get a good return on investment is through capital appreciation, namely buying stocks for cheap and then selling them dear. Penny stocks, or stocks that have a very low price, are one good way to do achieve this goal. However, penny stocks, like any kind of investment does carry some risk. Knowing how to find and choose penny stocks is one way to alleviate some of those risks.

If It's A Penny Stock Then Why Does It Cost More Than A Penny?

In the past penny stocks were defined as any stock trading for less than $1 per share, stocks that were literally trading for pennies a share. Now the term penny stocks mean any higher risk stock trading for under $5 per share. The price of stocks has a lot to do with perceived value and how much money a company is expected to make in the future. Some very small, high risk or volatile businesses with high expectations can often trade thousands of times what they are really worth

Investing With Penny Stocks

Penny stocks are long term, highly speculative investments. There are opportunities for incredible gains as well as total loss. Be sure to carefully research any penny stock before you begin giving them your money.

The Risks And Rewards Of Hot Penny Stocks

Penny Stocks are a great way for new investors and novice traders to enter the market. The stocks offer a lower amount of financial risk because the shares are much cheaper than mainstream,proven businesses. It is easy to enter a position of 1000, 2000 or 5000 shares for only a few dollars. Penny stocks also offer an increased amount of reward potential. If your penny stock company is able to turn itself into a viable business or attract a buyout offer your investment of pennies per share can easily turn into dollars or even tens of dollars per share.

How Do You Buy Penny Stocks?

Novice investors frequently ask me "where do you buy penny stocks?" Usually you can access penny stocks right through your regular stock broker or trading platform. Penny stocks are exactly like regular stocks except that the companies and businesses are not yet proven. Penny stocks as a term can also refer to stocks of a class, not just a price. Penny stocks often refers to start-up businesses, trial efforts or scientific research that have been funded through a public offering. This public offering allows the public the chance to buy into a new idea or concept at a very early phase of development.

Differences In Penny Stocks and Stocks?

When you are looking for penny stocks you will find many similarities between them and larger, well established companies. The penny stocks will have earnings and fundamental statistics as well as company information and links to news and the like. In all respects the companies represented by penny stocks are just like their larger cousins except in one way; penny stocks usually have little to revenue and are not yet profitable. When you buy a penny stock you are investing in the future hopes of the company founders.

Learn How To Trade Stocks

Penny Stocks Offer Huge Growth Potential

Penny stocks can offer huge growth potential but it could take years to realize any profits.  Penny stocks also offer increased risk.
Penny stocks can offer huge growth potential but it could take years to realize any profits. Penny stocks also offer increased risk. | Source

Why Trade Penny Stocks

Why trade penny stocks, you may ask? For the chance of hitting a home run. It is possible to return over 1000% or more investing in penny stocks. The next big thing in technology, science, medicine, video games or consumer goods is hiding among the thousands of penny stocks listed on the market today. Investment in penny stocks is a cheap and easy way to gain exposure to some of the hottest new trends. It only costs $40 to buy 1000 shares of a $0.04 stock, a sum easily forgotten. Now imagine what happens to those shares when the pharmaceutical business you invested in is bought out for its technology and the shares jump to $8. Those 1000 shares are now worth $8000, 200 times their original value.

The Risk of Penny Stocks

No investment comes without risks but penny stocks are riskier than some others. A stock trading for $1 today could trade for $0.05 tomorrow. Penny stocks are highly susceptible to news, the economy and other market moving events.

Some words to remember when considering which penny stocks to buy are "experimental" and "exploratory". Penny stock companies are primarily experimental or exploratory in nature; if they were proven viable businesses then they would be worth much more already.

Additionally, while some penny stocks are listed on the major exchanges most penny stocks are listed on the OTCC and Pink Sheets. These listings are not regulated the same as the major exchanges and are prone to manipulation.


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    • craigb182 profile image

      craigb182 5 years ago from Glasgow, Scotland

      Nice article and some good points made in regards to risk. Penny stocks are a tricky thing to make money from. There is some really good advice that helped me. Have a look if you want:

    • dreamdamodar profile image

      Raman Kuppuswamy 5 years ago from Chennai, India

      Good tips.

    • unvrso profile image

      Jose Juan Gutierrez 5 years ago from Mexico City

      Thanks! I appreciate your response.

    • TMHughes profile image

      TMHughes 5 years ago from Asheville, NC

      Great question! You can use an online broker and pay whatever their commission is, usually $10-$20 depending on the size of the trade.

    • unvrso profile image

      Jose Juan Gutierrez 5 years ago from Mexico City

      It's an attractive topic for someone intending to make some money. Since this type of investment involves a broker, around how much would I have to invest if I buy $40 in shares plus the broker's personal money fees?

    • ChristinS profile image

      Christin Sander 5 years ago from Midwest

      very interesting and informative hub that is explained very well. I have always been curious about this, but never really acted on it. I may just look into it further now. Thanks - voted up, useful and interesting.