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