By far, the biggest advantage of penny stock trading is the unbelievable leverage that it gives traders. This is the main reason why its absolutely perfect for new and inexperience traders of the stock market.
Most so-called experts of the stock market always tell traders to buy the blue chips stocks and build a portfolio. They tell you to buy stocks like Wal-Mart, Exxon, etc… The problem with that is that most new traders to the market don’t have a $100,000 to invest and build a portfolio full of Microsofts.
To give you an example, lets say that a new trader wants to put in $3,000 into the market. Do you really think they would be able to build much of a portfolio investing in the companies that most analysts recommend? Probably not. They’ll be lucky to buy 100 shares of just one of those stocks.
But what if we used that same example for a person just trading penny stocks. Think ho much of a difference that would be. They could buy 4500 shares of 75 cent stock or even better build an entire portfolio of just penny stocks. The trader has diversification at a much lower cost.
That’s the amazing thing about leverage. You’re able to get more shares of more stocks and your risk to reward ratio is so much better than if you traded the blue chip stocks.
What kind of return could you possibly expect to get from stocks like Target or Microsoft? It won’t be a whole lot more.
Companies like this already enjoyed their growth spurt. They are full grown companies now. These are the kind of the stocks that people hope to get a steady return of 10% a year, if they are lucky.
But when you’re talking about penny stocks, there is no denying how much growth potential they have. Certain penny stocks have gone up as much as 500% a day.
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