Advantages and Disadvantages of Penny Stocks

The term "penny stocks" generally refers to low-priced stocks of very small companies, usually under $5. They are traded over the counter through the OTCBB and Pink Sheets exchanges.

Following are some of the major advantages and disadvantages of investing in penny stocks:

Advantages:

1) Penny stocks can double or even triple their value in a single day.

2) This is the easiest way to make money in a short period of time.

3) It does not require a large initial investment, you can buy more for less money.

Disadvantages:

1) Penny stocks are far more volatile than regular stocks, and you can lose your entire investment in less than a day.

2) In some cases, penny stocks companies are either new companies or are experiencing major difficulties, and maybe even close to bankruptcy.

3) Penny stock companies are not regulated by the Securities and Exchange Commission (SEC), therefore it is quite difficult to find concrete information about the stocks.

* Next: Advantages and Disadvantages of Preferred Stock
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