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Evaluating the Worth of Risky Penny Stocks

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Risky Penny Stocks Worth the Risk

risky penny stocks

When many investors think of micro cap stocks, they think of risky penny stocks. They fear this market sector due to the dangerous reputation that these trades have earned. You need to consider the reasons and implications for excluding an entire sector of the stock market for your investment purposes. Examine the real risks and rewards to penny stocks before making this decision.

The Makings of Risky Penny Stocks

Risky penny stocks are considered risky for good reasons. There are 4 main reasons that these trades hold more danger to investors than other types.

•             Lack of available information about the stock

•             Lack of minimum standards to cushion investors

•             Lack of stock history due to a company’s new start

•             Low liquidity levels

These factors make penny stocks highly unappealing to cautious investors. These stocks are undeniably dangerous. Any stock carries risk, however, so it may be unfair to rule out penny stocks without examining another viewpoint. Someone is investing in them, and reaping great rewards.

Winning with Penny Stocks

All great companies must start with humble beginnings. No start-up company can launch with the NASDAQ greats. They all must pay dues at the bottom as risky penny stocks, and work their way to greatness. With high risk, comes an impressive reward. These stocks tend to experience rapid fluctuations in value over the span of a few days. This means that an investor could triple his capital in a few hours, only to lose it all by the end of the day if he/she is not careful. Although it can be difficult to find useful information concerning these stocks, the payoffs are well worth it if you can create a winning formula.

There is no doubt that penny stocks are risky, but so is any other sector of the stock market. It is completely inadvisable to sink your entire capital into penny stocks, but you may portion out a small percentage to use in these high-yielding investments. Keep in mind that risky penny stocks hold great rewards for savvy and smart investors.

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