Penny Stocks – is it the best way for trading?

Penny stocks are low-priced securities that are currently trading below $5 per share. Often times these stocks have fallen from much higher prices and now trade thinly with low volume. These stocks are no longer listed on the major stock exchanges, and are traded on OTCBB or Pink Sheets.

Why you have to trade these stocks? Penny Stocks allow a speculator the ability to purchase a large number of shares with a relatively small amount of money. The buyers hope to receive a quick pop in the penny stock, which will yield a large return on their initial investment. If a stock buyer has a strategy for trading these small amount stocks, it can be successful. However, the rate of success for this approach is very little or none.

The truth story about this stock
Do you ever ask yourself how many times have you been on a yahoo stock message board and see a post saying, “buy XTYLXE, it is set to rally over 2000%” Most of you when read this article probably tag these emails as spam and then move on with your lives. Have you ever stopped to ask the question, why do I keep getting these emails? Are people really buying these stocks? The answer is yes, for every “x” emails sent, there are a few people who actually take action. I think you know how the story ends for these poor souls. They will end up with losing their money to stammers’ pocket.

Reality of trading Penny Stocks
If you actively trade these stocks, it is basically a form of gambling. Just stop to think for a second about what you are doing. You are trading a stock that has little or no trading volume, which means there is no public interest. The stock is not listed on any of the major exchanges, which means you are not protected by all of the rules prescribed by the Securities Exchange Committee (SEC). Lastly, if a stock only costs .25 cents per share, you get what you pay for. Most speculators do not have the money management principles to successfully trade penny stocks. Often times, traders will continue to go all in on every penny stock trade, and then after 8 wins in a row, the 9th trade will take them out of the game.