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Penny Stocks Offer Big Benefits with Small Investment

We have heard of big companies and fatty stocks offered by them but what are penny stocks? Can they be bought for a few pennies? You are somewhere near to the answer in your questions. Penny stocks are usually offered by new companies and are priced lower than $5.00. Some stocks are priced so cheaply that you can buy them for few pennies. In most of the cases small cap stocks are offered by brokers and so they are less popular in the market. But companies also have the option to hire investor relations firm.

Price is the biggest benefit as well as drawback of small cap stocks. They can be bought for a very small price. Even a small change in their price can help you gain from the transaction. For example if you buy penny stocks worth $50 at $1 per stock then you will be able to buy 50 stocks at a time. Now if the price per stock increases even by $0.10 then also you will benefit by $5. That is a 10% return on investment a good percentage of return for a small amount.

As against this price is also a drawback of penny stocks mainly because it takes longer to see increase in their values as compared to big value stocks which show tremendous changes even in intraday transaction. Their price shows rapid increase or decrease in values. Penny stocks on the other hand take longer to show changes as it is mainly issued by emerging companies which take much longer to materialize funds for further development.

But the price drawback is negligible when compared to the benefits that penny stocks offer. If we review the price advantage from a different angle it can also be said that they are less risky as they reduce the amount of loss suffered. Yes, they are less risky in the highly risky market of stock exchange. Want to know how? This can be explained better with an example where you have bought two different types of stocks.

Let us say you have bought 100 big value stocks at $30 per stock investing a total of $3000 and 100 penny stocks at $0.30 investing a total of $30. Now if the market falls then big value stocks will be more affected and the amount of loss will also be big. Even a $2.00 fall in price of big value stocks will mean you are losing a total of $200 a big amount, especially in this recession time. As against this for penny stocks even if you loss all the money invested (which is of course never going to happen) the loss will look less.

Less risky penny stocks come for a low price, minimize the amount of loss and so give small cap investors chance to increase gains while decreasing losses. The popularity of small cap stocks has been able to lure more and more small cap investors into them. Also when you buy them for a small value there are all possible chances that these penny stocks will make it big someday in future. The return on investment at that time will be incredible.
About Author roney james :

<a href="" target="_blank"></a>" title="Penny stocks">Penny stocks</a> are less risky and promise better return on investment, hence be a <a href="" target="_blank"></a>" title="small cap investor">small cap investor</a>.

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Article Added on Wednesday, January 12, 2011
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