Stock and share trading comes in many different categories - one such category that has become more popular with the advent of the internet is that of the "penny share". While the name may imply that these shares sell for 1p or $0.01, it actually refers to shares that sell for relatively low values - many place the limit around $1.00 or £1, although this will vary from broker to broker.
The low prices offered by these shares are usually due to the fact that these companies are new and currently running with low funding - the low price is not necessarily indicative of a company that is struggling or going downhill. While this may be the case from time to time, many companies that offer penny shares are carrying a strong upward momentum. It is not uncommon to see successful internet companies, resource companies, and medical companies start out a low values while they are still building investment capital.
Investors like penny shares for several reasons. For one, the profit margins can be quite high. A stock that goes from £10 to £11 has a 10% gain - while a share that goes from 50p to £1.50 has a 200% gain - this makes quite a difference when it comes to overall profits. Investors also typically find this type of trading more thrilling, as the excitement of stumbling upon the next "big thing" is quite a rush.
Another benefit of penny shares is that they require very little investment up front. Unlike with other investments, which can require a large sum up front, you can easily buy a few penny shares for less than what you will spend on lunch tomorrow. As mentioned earlier, this can make the resulting payouts even more amazing in terms of profit. Beginning traders can also benefit by practicing with a small portfolio of penny stocks - a great way to get used to trading without much financial risk.
As with any trading, there comes a natural risk with trading these low cost options. Investors are usually willing to accept this risk, as one success can easily pay for three, for, or even five failed investments while still providing enough profit to make the required time worthwhile. Risk can also be minimized by taking the time to study companies ahead of time before purchasing any of the stock. Analyzing long term trends, market demand, and internet buzz can be a good indicator of which penny stocks will be successful.
If you have not traded penny shares before, you are missing out on an exciting part of the market. Some even refer to these as the "best kept secret of financial trading". Whether you are new to investing, or a trading expert, there is great opportunity and potential for success to be found in trading penny shares.
Visit: www.Penny-Shares.net - for all you need to know about Penny Shares.
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