Exactly What Are Penny Stocks, and How Can They Make Me Money?

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penny stocks

You’ve likely heard the stock market can make you a lot of money. You’ve probably also heard that getting started in the stock market takes a lot of money too. That’s not the case if you start with penny stocks.

Penny stocks get a bad rap, but they shouldn’t. You can make money with penny stocks. You just have to understand exactly what they are, why they’re appealing, and how much money you can make.

What Is a Penny Stock?

If you’re thinking about investing in something, it pays to know exactly what it is! A penny stock Is a very low-priced, small cap stock. Some may cost just pennies, but technically, a stock can be classified as a penny stock if it lists for under $5 a share.

There are other stocks trading in the NYSE and NASDAQ at these prices, so what makes penny stocks different? They’re more risky than other stocks:

  • Information: Unlike other stocks that can be researched in depth, penny stocks aren’t required to file with the Securities and Exchange Commission, which means information on these companies must be obtained from sources that may not be credible.
  • Standards: Penny stocks do not have to fulfill minimum standard requirements in order to remain on the exchange.
  • History: Many companies trading penny stocks don’t have much of a history, so it’s hard to tell what their potential might be.
  • Liquidity: Some penny stocks have little to no liquidity, making them extremely difficult to sell when the time comes.

The Appeal of Penny Stocks

With information like that, why does anyone bother with penny stocks? Well, there are plenty of appealing features as well.

Penny stocks don’t cost a lot of money, so they’re an easy way to get into the stock market. And, with the right research, you can choose penny stocks that have the potential to be successful. If your penny stock skyrockets, you’ll get a much larger return on your investment as compared to other stocks.

How Much Money Can You Make on Penny Stocks?

Everyone wants to know how much they can make on penny stocks. There’s no doubt that penny stocks can make you money, but you won’t get rich overnight.

Contrary to popular belief, most big companies don’t start as penny stocks, so don’t think you’ll invest in the next Microsoft for just pennies. Instead, when you pick the right penny stock, you’ll likely be investing in a company you’ve never, and will never, hear of.

If your pick does well, you might earn $500, $1,000, or if you’re really lucky, $2,000 in a day. You won’t become a millionaire overnight, but penny stocks can be a great investment strategy if you’re willing to play the long game.

The key is to educate yourself on penny stocks so you can choose the ones that are most likely to reward you for your efforts. If you do, you may just find that you’re well on your way to financial independence.

Author: Susan Melony