As a starter in the world of investment, penny stock proves to be a good option as it allows the user to buy stocks at a lower price and allows the user to explore the world of markets. A novel investor can invest his money in a stock and even if he looses the money there will not be any substantial loss. An investor should take the advice of a broker, study the stock for himself, analyze and reanalyze before investing in a stock. There are reports of some stock being disorganized to this an extent that they have not even registered with the government. Investors should be aware of this before buying penny stocks. Penny stocks usually have a very high risk involved as there is hardly any liquidity. There are only a few people who own a huge number of shares in penny stock market. When these people sell out shares there is a sudden change in the demand. When few owners sell their stock, other investors queue out to sell their stocks creating a huge demand for selling a particular stock.
Penny stocks do not appear on large-cap markets, so investors should be aware while choosing the stock. Some websites are available which gives false information of penny stocks. However, there are lists of stocks available for investors. Investors can choose from this list and make a decision of investing in a particular stock. Starting with penny stock is easy because of low price, rapid profits, and with the advantage of less loss involved. While choosing a stock research is very important. You should know whether you are investing in a good company or is that company not worth investing on. Source of information is also important. There are websites who give free tips about buying penny stocks. Then you can take advice from brokers but do not entirely rely on them. The most important thing is to trust your own instincts, study the market and the stocks and invest wisely. Next thing is you might choose a reputed company who is about to make a massive success but that is not always permanent. So invest wisely. There are some stocks that do not fulfill minimum standard requirements to stay on the exchange. Minimum standards act as a safety cushion for investors and a benchmark for some companies. And there are many others who are newly formed and lack history. Investors find it difficult to study these stocks. Penny stocks have been a pain in the SEC functioning because of lack of information and illiquidity. This makes it an easy target for people to cheat others.
However, if taken proper precautions and care to buy penny stocks can give you massive profits. If a stock is at 10 cents and rises by five cents, you will have made a 50% return. This, together with the fact that a $1,000 investment can buy 10,000 shares, convinces investors that micro-cap stock is a rapid, sure way to increase profits.