Mar 19, 2012

Posted by in Penny Stock | 0 Comments

The Key To Low Penny Stocks

The Potential in Low Penny Stocks

The advantage of investing in low penny stocks is not immediately clear to many investors. In fact, many traders mistakenly think that a low-priced stock is inherently less capable of creating returns than a more expensive large cap stock. These cheap stocks are actually more capable of making sizable returns than their more expensive counterparts. The trick to making them effective is in volume.

If you want low penny stocks to make money for you, then you have to take advantage of their low-value and buy a lot of them. If a stock is only worth 10 cents per share, you can buy 100,000 of them for just $10,000. That same amount of money would buy very few large cap stocks, leaving you able to profit only from large changes in stock value.

Imagine what would happen if you sank all that money into low penny stocks. A single penny increase in value would net you $1,000 because you have so many shares of that one company. The same change in value in a large cap stock would not make the commission fee worth the trade.

While these stocks have low initial value, that just increases their potential. Some of the low priced stocks that you can find these days have suffered serious setbacks due to the recent economic crisis. However, if you know anything about trading, you know that stocks have a way of coming back. Some major companies are now selling their stocks for less than a dollar. With the same infrastructure and an improved business plan, they are sure to come back and create serious earnings for their investors.

How to Buy Low Penny Stocks

Unfortunately, you often cannot find low penny stocks on the regular stock exchanges. The companies that issue these stocks do not meet all the filing requirements set by the SEC. If you want to buy stocks worth less than a dollar per share, you generally have to look for them in the over-the-counter market (OTC).

When you buy OTC stocks, you have to be more careful than you do when you buy stocks listed on the NYSE. The SEC does not provide oversight for OTC stocks. You must buy low penny stocks directly from their holders rather than through a broker.

Comments are closed.