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