Penny stocks are popular among day traders. As opposed to industry-specific stocks, penny stocks are simply based on the price of a stock. As opposed to popular belief, penny stocks involve more than cheap stocks under $1. According to the Security and Exchange Commission’s definition of a penny stock, these are stocks under $5 per share.
Regardless of your belief in what penny stocks are, they are one of the highest risk classes in the stock market today. If you’re someone looking for penny stocks to buy, it’s important to note that these are just like any other investment. Just because a stock is cheap doesn’t mean it’s one of the best penny stocks to buy.
Why Penny Stocks?
Traders choose to buy penny stocks because they move so quickly. As opposed to stocks like Apple, which might take years to gain 50% or more, penny stocks are different. In most cases, a 50% increase in price can come within a single day. That same 50% can also come in the form of a loss if the penny stock goes in the wrong direction.
All investors don’t choose to trade penny stocks. But for the risk-averse, shares of stocks under $5 can bring that desired rush of adrenaline. However, the ability to make money with penny stocks depends heavily on your personal trading strategy. If you’re reading about penny stocks right now and have no plan, then education and learning how to trade penny stocks is your first step.