The term penny stocks is somewhat of a misnomer. Most will look at the term and assume that it refers to buying stocks at a very low price and then selling at an almost equally low price. This is a skewed way of looking at penny stocks and a more accurate assessment would stocks which can be bought at a low price and then watching the price of the stock grows. You could even dream of selling them at a high profit. Then again, you might not have to dream of anything you could just go right ahead and buy low and sell high!

Some may be wondering what are penny stocks and why have they grown in popularity in recent years. The latter question should be somewhat easy to answer many are looking towards penny stocks because they can prove to be profitable investment vehicles. They are cheap to acquire and can potentially increase exponentially in value.

The Basics of Penny Stocks

What is a penny stock? Contrary to what the name suggests, it does not refer to a stock that is always sold at a penny. Rather, it refers to a publicly traded stock that sells for under one dollar. The low price of the stock makes purchasing enormous amounts of shares relatively easy for someone that may have low investment capital.

Of course, this does raise the obvious question: why would anyone be interested in purchasing a penny stock? The answer is about as simple as simple can be: the stocks would be purchased for the purpose of amassing profits. Low share prices come with great potential to grow and they may very well grow significantly.

The way the process works just follows basic investing and trading strategies that have been with us since the dawn of time:

If you purchase 2,000 shares of a stock at $1 each share and the value of the shares increases to $1.25, you would have experienced a $500 profit on the venture. If you are an investor, you will be purchasing the stocks for the long term. That is to say, you could be wiling to wait quite some time for the stock to increase in value. This is certainly not a problem in any way as long as the value of the stock prices does increase.

However, if you are a trader, you will need the value of the stocks to increase within the same day you made your stock purchase. Obviously, this is a riskier and far more complex way of entering the penny stock market. The clear reason why many will opt to day trade is because they can amass great profits (Well, potentially amass them) by the closing of the market on the same day. Such a venture requires a great deal of research, speculation, and help from signal services and the like. As such, penny stock day trading is only recommended to those truly up for the task.

The Lowdown on Penny Stocks

Which direction should you go in with penny stocks? The answer is up to you. You just need to find the vehicle you are most comfortable with and take advantage of it. Good luck getting started with penny stocks!