The penny stocks are traded at a very low price, even for under a penny. Thus the name is given to them but they are capable of creating vast wealth. These types of stocks are generally considered to be highly notional and high risky because of the lack of liquidity, small capitalization and limited following. Investing in them provides investors with the opportunity to increase their profits but get some losses too.
There are much responsibilities involved in buying more stocks of a publicly held company. For avoidance, large funds usually don't take up penny stocks. Low-load, penny stocks can be risky because of moving prices. For the said reason these are mostly avoided by stock investors.
Because of the wildly fluctuating prices, investors find it risky for investment purpose. In order to gain out of them try to get into investing in these stocks if you have discretion and especially low tolerance limits. No doubt you may feel attracted to these, because of high gain out of this. You might invest a little and fetch a handsome return for your investment. If you wish to invest for penny stocks, then you must have the company knowledge, and keep a track for the company stocks. This only will help you get the best possible outcome.
Stay away from unknown companies. It is not advisable to invest in an unknown company at all. If you are not having any information about the company, then you are at loss.
Sometimes the companies may be almost on the verge of bankruptcy. It is better to avoid them unless and until you have reliable information from insiders. Another important factor to be kept in mind is how these are being traded.
While, deciding for a company keep in mind the average volume can be misleading. It won't provide you the right direction. So think of a company, which trades on daily basis and you can even look for volume.
You can get to know about penny stocks through the help of mailing lists, newsletters etc. But do not rely on them completely. There are some bad newsletters also. So monitor each and everything yourself. There are a number of steps to be followed before investing, and a number of resources to help you track and invest in penny stocks. Never invest all of your capital at once. You might gain sometimes, but putting all of your capital at risk might be dangerous for you. So, think before putting all of your capital at risk.
Author is a stock market expert, he is currently associated with the website stockgodies.com and frequently writes articles on penny stocks and runs a website where users can get involved in penny stock chat with the experts