Penny Stock

Penny stocks are also known as micro stocks and are generally available at lower prices. These stocks are not the blue chip or high profile companies which form part of the major news items of financial sector. Penny stocks are low priced stocks of companies which are non descript and which are relatively not known much. As these are not the talk of the town, these stocks are not favored by sophisticated investors or institutions unless they specialize in such stocks.

In relative terms, penny stocks are generally available at less than 5 dollars and can be money making opportunities if the company is good and market has still not got a whiff of it. The rise potential of such stocks is enormous and may make a world of difference for investors if they enter and exit at the right time. The problem with these stocks is that there is very little research available on these stocks and these are also not a toast of flavor of analysts and broking houses. Hence you have to make your own efforts in doing the research and unraveling the potential of some of the lesser known goldmines. Believe me people have made millions out of these stocks and earned far better returns than the so called blue chip stocks.

The downside of penny stocks is that there are only a few of these stocks are really worth the attention and more importantly your money. Many of the other penny stocks are laggards because they deserve to be so. Their performance is so as they have failed to reward their shareholders and hence lost the flavor.

Penny stocks are generally not traded on the major stock exchanges. These are available on Over the Counter market or what is commonly known as OTC market. Hence you have to be careful before investing in these accounts. Further the risk factor in these penny stocks is also quite high and only a few of the lot see the brighter side of the investment climate in the log run. Thus you have to be sure before committing to invest in penny stocks.

Penny stocks have their own dedicated markets and players. A few of the broking houses and hedge funds specialize in trading in penny stocks. The make attempt to identify the good ones at a early stage of their life cycle and make huge money when the entire market comes to know of their potential. However by their very nature, the risk factor is huge and sometimes the entire investment may prove to be dud investment.

The good thing about penny stocks is that they are available cheap. Thus even if a few of your entire portfolio earns decent money you can sit on the profit and it will compensate the likely losses from your other investment decisions. The strategy thus is to enter at the right time when it is available at a low price and exit at the most opportune time when prices soar.