Benefits & Drawback of Trading..
Benefits
To help you decide whether day trading on penny stocks is for you, consider the benefits and drawbacks listed below.
- Excitement – There is no denying day trading with penny stocks can be exciting. The possibility of large wins and big losses make for an appealing market.
- Speed – Whilst many on your penny stock list may remain relatively steady, some prices will shift significantly in a short space of time. This can result in substantial profit potential for switched on day traders.
- Initial capital – Less than a thousand dollars may only allow you to buy several shares of large companies. However, you can buy thousands of shares of the penny stocks you are interested in.
Drawbacks
Unfortunately, many of the day trading penny stocks advertising videos fail to point out a number of potential pitfalls:
- Low-quality companies – No matter how effective your strategies, you will need to account for the low quality of the majority of penny stocks. This means companies in terrible financial positions, with worrying balance sheets, generating significant losses.
- Risky markets – There are some regulated penny stocks on the New York Stock Exchange, American Stock Exchange, and the NASDAQ. However, those traded on the Pink Sheets, OTC, or OTCQX will often lack sufficient oversight. Unfortunately, there simply aren’t strict penny stocks rules. This means listing fees, requirements and reporting regulations can be virtually non-existent.
- Broker fees – With traditional day trading vs penny stocks, you must also take into account the less favourable price structures brokers offer. Many will charge higher commission rates for penny stocks, if they offer it at all. Plenty also won’t allow special trading orders, such as stop-losses.
- Low volume – Volume is essential if you want to generate decent profits. Yet penny stocks can see just a few thousand shares exchanged each day, and some even less. Large companies, however, may trade tens of millions of shares in a single day.
- Scams – Head over to a penny stocks day trading forum and you will quickly come across stories of lies, scams, pumps and dumps. Unfortunately, there is a wealth of disinformation available, so making the right investment decision can be extremely challenging.
- Selling – As a result of being traded at such low volumes, finding a buyer when you want to sell can be difficult. This is a serious problem, especially when making a profit often relies on buying and selling at precisely the right time
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