Penny stocks used to refer to stocks that sold for under $1 per share. The definition of a penny stock now includes stocks that are trading under $5 per share. They are generally not traded on major exchanges.
Are Penny Stocks Good Investments?
Penny Stocks are a high risk investment. They are very volatile, so they have higher possibilities of both risk and reward.
Before you invest in penny stocks, you should have a stop loss order in place. This will determine where you will exit the market if you stock starts dipping too low.
Investors should take a realistic view of penny stocks. Don’t Expect to make a fortune overnight. It takes time to realize gains.
What Makes Penny Stocks Risky?
Often, there is not much information available on companies with penny stocks. They don’t have to meet requirements like stocks that are traded on the exchange do. Most companies offering penny stocks are either brand new or entering bankruptcy. They will have either bad history, or no history at all. Because they have a low level of liquidity, they might be hard to sell. All of these factors make penny stocks risky.