Penny stocks, also known as micro-cap stocks, nano-cap stocks, small-cap stocks, or OTC stocks, are ordinary stock in small public corporations trading for less than $1 per share. Investing in penny stocks gives traders the potential to raise their profits significantly, but it also provides an equal opportunity to rapidly lose your trading money. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.
1. Penny Stocks are a penny for a reason
The reality is, while we all dream of investing in the next Microsoft or the next Home Depot, the chances of you discovering the success story once in a decade are slim. They either start and buy a shell company because it was cheaper than an IPO, or do not have a business plan that is convincing enough to justify the money of the investment banker for an IPO. This doesn’t make them a bad investment, but the type of business you are investing in can make you realistic.