Penny stocks are one of those polarizing investing topics. Some people see them as a great way to make fast money. Others see them as too dangerous and risky because of their extreme fluctuations. In either case, this will educate you about what penny stocks are, what the risks and rewards are, and a few penny stocks you should consider.
What Are Penny Stocks?
The definition of what constitutes a penny stock has changed slightly over the years. While some penny stocks are literally worth just a few pennies each, the legal definition is a little broader than that. Technically speaking, a penny stock is any stock worth less than $5. The definition used to be any stock valued less than $1, but it has been increased to include more stocks.
These stocks are almost always from smaller or newer companies. As will be explained more in the risks and rewards section, they also tend to have low liquidity, but that’s not always an issue.
What Are The Risks And Rewards?
As with any investment, there are major risks and rewards to consider. Since most people are concerned with the risks, that seems like a good place to start. These stocks can have big fluctuations. They might go up dramatically and then crash down just as quickly. Being on the wrong side of that wave can make you lose a significant amount of money.
There’s also the problem of liquidity. Unlike stocks from major companies where there are always buyers, penny stocks might have no buyers available. This means you might have a hard time trading your stocks in for real money. This can be very frustrating if you caught the stock at a good time and your investment has grown exponentially.
There are rewards as well. Any good investor knows that high volatility can result in major gains very quickly if used properly. Penny stocks are notable for their volatility and they can rapidly gain or lose value. Figuring out the right time to sell can dramatically increase your profits. If you can master this skill, then you can potentially make lots of money through penny stocks.
Penny Stock Ideas
There are many penny stocks to choose from and it can be hard to know where to start. One of the best penny stocks would be Consumer Portfolio Services Inc. (NASDAQ: CPSS). While some financial companies are a bust, the experts at Money Morning say, “the company is a good bet for a potential beneficiary of stimulus spending.”
You should also consider Viking Therapeutics Inc. (NASDAQ: VKTX) as they are known for novel medications, and Orion Energy Systems Inc. (NASDAQ: OESX). Both have either gone up significantly in value or are likely to go up soon.
Penny stocks can be a scary investment at first, but mastering the skill of selling at the right time can help you gain significantly in this market. While there are major risks, there are equally good rewards if you sell at just the right time.
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