| Many people are attracted to the stock | | | | on penny stock exchanges are smaller |
| market, as they should be for investment | | | | companies with little or no cash, or shell |
| purposes. The stock market has always been a | | | | companies with no viable business operating |
| valid option for people to build a retirement | | | | within the shell. |
| fund or a nest egg over time, provided they | | | | |
| are savvy enough to pick the correct stock or | | | | Penny stocks are wrought with fraud in some |
| fund. Many times, there is not enough time to | | | | cases as unscrupulous characters tout these |
| devote to financial planning so a reputable | | | | thinly trade stocks over the Internet or |
| financial planner is enlisted for guidance. | | | | newsletters, selling their shares into penny |
| This scenario is the usual way people | | | | investors as the share price increases. |
| approach the stock market, however, | | | | However, this is not always the case. There |
| speculation is another way people use the | | | | are viable start up companies trading on the |
| stock market to make money. | | | | penny stock exchanges that have a sound |
| | | | business plan with exciting futures, but |
| Speculation comes in many forms with the | | | | little cash. When penny stock investors are |
| stock market, usually by people that have | | | | fortunate enough to invest in one of these |
| enough disposable income to absorb a loss. | | | | companies, gains in the stock price can be |
| Futures trading or commodity trading is one | | | | one thousand percent or better. |
| form of highly speculative investing or | | | | |
| trading. Another is option trading. Stock | | | | A speculation in penny stocks unfortunately |
| options are derivatives that get their value | | | | is mostly done by people with little cash |
| from the underlying stock and can be highly | | | | available for speculation and are unable to |
| speculative as they can expire worthless in a | | | | withstand the loss. Attracted to the |
| given period of time, unlike stocks. One good | | | | inexpensive cost of these stocks, speculators |
| thing about stock options, the amount of | | | | more time than not, lose their investment and |
| money a person can lose is the amount spent | | | | in some cases average down by purchasing more |
| on the options, unlike short selling, which | | | | stock as the share price tumbles with the |
| can become extreme losses if a person is on | | | | hope that the stock will return to previous |
| the wrong side of the trade. | | | | highs. In some cases the penny stock investor |
| | | | does realize gains after averaging down, but |
| Another form of speculation is penny stock | | | | this is not the norm. |
| trading. Penny stocks, as tradition states, | | | | |
| are any stock that trades below five dollars. | | | | Penny stock investing should be approached |
| However, for the purpose of this article, any | | | | with caution and proper research should be |
| stock trading below one dollar is a true | | | | done before buying equity in the company. |
| penny stock. Many people are attracted to | | | | Diamonds in the rough are out there trading |
| penny stocks because of their low price and | | | | on the penny stock exchanges, but honest |
| the amount of shares that can be purchased | | | | research and a critical thinking should be |
| for less money than larger stocks. One major | | | | applied before deciding to become a |
| drawback of penny stocks is that they are | | | | shareholder in a smallcap company. Due |
| thinly traded and can go weeks or months | | | | diligence is key to making informed decisions |
| without a single trade being executed by | | | | when considering a penny stock company. |
| market makers. Usually the companies trading | | | | |