Penny Stocks Tend to Get a Bad Rap:
There are many traders and investors that avoid penny stocks like the plague, viewing them as the “scum” of securities. Why trade little-known tickers with questionable business models and financials when you can trade proven blue-chips with considerable market share and years of experience in their respective industries? After all, penny stocks are penny stocks for a reason.
The truth is, there’s massive profit-potential in penny stocks if approached correctly, but there are still risks that need to be monitored. The main concern: these companies aren’t likely to succeed. Thousands of ignorant investors think that big companies like Microsoft and Wal-Mart once started as penny stocks, but that’s a mere fallacy. Penny stocks typically aren’t good long-term investments because they lack enough history or publicly available information in order for investors to make informed decisions. They do have one major asset on their side though: volatility. And that alone provides short-term trades with opportunities for profit. Blue-chips will never run 100-200% in a few days, but that’s not out of the ordinary for a penny stock. As long as traders understand what they’re getting into, the penny stock arena is an opportunity for substantial returns.