What Makes Penny Stocks Appealing?

There a lot of traders who trade standard mid and large cap stocks that simply do not understand the appeal of penny stocks

. A lot of them prefer to trade larger stocks because these stocks seem to offer a little bit more predictability. But the truth is, regardless of what traders might think in regards to these stocks, the risk is exactly the same when it comes to trading regular stocks versus trading penny stocks. It just happens a little bit faster with penny stocks. You can see the double overnight but you can also see them do the exact opposite. So what draws people to them?

To start, penny stocks are quite a bit cheaper to purchase than standard mid and large cap stocks. This is a great advantage for people to have who don't have a lot of money to start trading. Having a lower price stock helps reduce the overall amount the commissions damages you when you're trading. Mainstream stocks can often be a bit more complicated as well since there are a lot more factors that go into a large company than a small one.

Penny stocks move much more quickly than normal stocks simply because they are trading on such significantly lower volume. Because of that, a change in buying patterns means that the entire stock can change direction practically overnight. This brings quite a few traders into the market of penny stocks looking to taking quick returns on their investment.

Last thing to remember, traders like penny stocks because the overall relative increase in prices typically quite a bit higher than it is with mainstream stocks. Because the penny stock is already in such a low price, is often times very difficult for it to go anywhere but up. and when it does, a penny stock will go up 20% for every two or 3% the normal stocks might increase. Obviously it does the exact opposite in the wrong situations as well. So if you're willing to deal with the risk associated with micro cap stocks, this is a tremendous advantage to while trading.

Trading micro caps really isn't that much different from trading on any other kind of stock. It simply means that you have to do your research like anything else, but also means that there is a different kind of risk taking place in the markets as well as different factors that need to be observed. Just keep in mind when trading penny stocks are cheaper, move faster, and have higher percentage gains and losses relative to the current price and you will be successful finding what penny stocks you need.

by: Eric Conklin

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