Penny stocks can be a bargain, but they are also very risky. It is important to be able to spot the scams and to trade with reputable brokers. Above all, it is important to beware of overly-enthusiastic penny stock tips that encourage people to invest in particular opportunities. The best legitimate penny stock tips are to conduct thorough research and to be suspicious of hype.
Penny stocks can be profitable because of the low cost of investment, but it is also important that investors in these stocks be prepared to lose money as quickly as it can be made. This type of stock is highly volatile. The most useful of penny stock tips is simply to trust one's own analysis, or that of a very reliable broker. Due to the low financial investment of penny stocks, however, some brokers might charge a higher commission than usual when dealing in them. In some cases, this might make the possibly high return of penny stock dealing — which is its main draw — less realistic. Whether the broker or investor is making the decisions, the main idea is to find companies with strong potential that lack current market interest and to invest in them.
While penny stock tips abound on the Internet, many are misleading. Those penny stock tips that tout the purchasing of any stock as a "sure thing" are not to be trusted. Such enthusiastic advice is usually propagated by interested parties that would like to see interest in the company grow rapidly, along with the value of their own large investment in it. They know this interest will not be sustainable and so, once the value of the stocks they've bought represents a sizable return on their investments, they sell off all of their shares. Since they are frequently the company's biggest investors, this sudden selling-off of their shares can deeply hurt the company and its other investors.
Since companies offering penny stocks are small or developing businesses, finding accurate information about them can be difficult. Low cost of investment is not the only reason that penny stock investing can be seen as a good way to practice one's trading skills; it also requires a keen eye to spot the many scams and bad advice to be found when trading penny stocks online. Despite the risks, if approached with caution, penny stock investing can be an enjoyable, educational and — at times — very profitable endeavor.
