Penny stocks and traditional stocks are essentially the same type of instrument – both are shares in a publicly-traded company. However, they carry completely dissimilar criteria for investment and require extremely different strategies. Penny stocks are one of the most popular forms of – let’s face it, high-risk gambling. That’s not to say that penny stocks aren’t a good investment, because they can be the greatest growth aspect of your portfolio. It is, however, one of several reasons why it’s critical to understand the difference between penny stock and traditional stock. Both can earn great returns, but each requires a unique approach and different expectations.
Traditional market stocks
Thousands of companies of all sizes trade in the major stock markets. A number of them are worth $100 billion or more, but all have substantial revenue that often ranges into 10 or 12 figures. These companies trade stocks that are perceived as low-risk, but usually with fairly low returns as well. Investors who specialize in larger stocks generally want a more stable portfolio, and often buy stocks just to hold them and gather dividends. The fluctuating value of the stock doesn’t play a huge role in the purchase decision because profits aren’t necessarily based on stock sales.
Traditional market stocks are a favorite for mid-level investors, people putting money away for retirement, or others who want relatively hands-off stability. You don’t need a lot of market knowledge to buy these stocks and still make at least a little money. As has previously been proven by notorious companies such as Enron, though, it’s still important to understand how the company runs before trusting it with your money. If you want to invest the penny stock, I highly suggest you subscribe Microcap Millionaires and visit Microcap Millionaires Review website.
As currency values change, so too does the exact definition of a penny stock. At one time, it really was a stock that sold for a penny or two. The idea is that it’s easy for anyone to buy 5,000 stocks at a penny apiece and just wait. At that price, even jumping to a mere $.05 per stock spells substantial increases for the investor. Sell enough to recoup the initial investment, then watch to see how much the company grows before selling for many, many times the initial investment.
Today, most people label any stock that sells for about $5.00 or less apiece is a penny stock. This isn’t entirely accurate. At the core, a penny stock is stock issued by a small company that just arrived on the market. It probably isn’t in major exchanges yet, and it still has a lot of building before it’ll be a full-fledged public company. Market capitalization (the total amount of money in shares) may be less than $100,000, and the overall value of the company is peanuts compared to the companies on the major exchanges. A huge company that crashes may have shares trading for under $5.00 each, but they’re not subject to the same strategies as a penny stock.
True penny stocks carry minimal risk due to their low purchase price, and do have the potential to grow exponentially. While most of these small companies do fail in the first few years, the ones that succeed could potentially recover the losses from all the others.