Not everybody knows what penny stocks are but they are shares in companies just like other stocks and shares, except they are worth less. You can learn more about penny stocks at http://www.moneysoldiers.com/how-to-buy-penny-stocks-the-basics/ but they are shares in companies which are small, worth perhaps less than $50 million and so each of the shares is worth less than $5, not enough to be considered worth trading on the large stock markets like NASDAQ and the NYSE. Although some of these penny stocks may be worth as much as $5, many are only worth pennies which is where the term penny stocks came from. These small value shares can be traded in the same way as the more expensive shares however, as they are not traded on the big stock markets, they do not come under the rulings of the Securities and Exchange Commission (SEC). One of the rulings that the SEC enforce is that any company wanting to trade its shares on the main stock markets, must provide any potential investors with information about their company so that those investors will know exactly what it is they are investing in.
As the small companies do not have to provide this information though, many do not which means that anyone investing in them is doing so ‘blind’. This has resulted in some people referring to penny stock investments as a gamble and they may be right. Gamble or not though, many people do invest in penny stocks and some of them even become millionaires by doing so. Any form of gambling will have its winners but like any other form of gambling, penny stock investments see more losers than they do winners. It is estimated that only 10% of penny stock investors actually make money from their investments which means, the other 90% lose their money. What attracts people to penny stock investing though, is the fact that you can start trading penny stocks with as little as $50 and so for those people that would like to try trading but do not have enough capital to start trading on the main stock markets, can at least start with penny stocks.
Many of the 10% that do make money from their penny stock investments go on to trade in the larger stock markets as soon as they accrued enough capital to do so whilst others, although few, keep investing in penny stocks and have gone on to become one of the penny stock millionaires. As the companies whose shares trade as penny stocks are small, the fluctuations in their share prices can be large as some companies flounder and fail whilst others go on to grow into large corporations and so anyone that is contemplating starting to invest, or gamble, in penny stocks, should hope for the best but also be prepared to lose their investment. Trading can be fun as well as profitable but only for the lucky few, for the rest it can be a very stressful way of losing money.