Penny stock investment - The Pros and Cons

Penny stocks are essentially low priced stocks of small time companies which do not have much market penetration. These are very low prices speculative security and they are generally traded over the counter on Over the Counter Bulletins or Pink Sheets. There is no listing of such stock found on the registered stock markets like the NASDAQ or the New York Stock Exchange.

The main disadvantage of microcap stocks is that they are not listed on regular stock exchanges and can be traded only on as otc stocks. They are also considered highly volatile and their trading is restricted to a limit. The Over the Counter Bulletin and Pink Bulletin are not governed by any regulatory body such as the Securities Exchange Commodity and thus there is not much transparency in the trading of such stocks.

The companies which issue such small cap shares are not very well known and nor are they likely to make drastic additions to their profits in a short while. The microcap sector of the stock market is so volatile that you can expect a stock price to drastically change within a matter of a few hours.

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Among some of the advantages of investing in such stocks is that they are very cheap and highly affordable by almost all investors. They are very speculative and hence an investor van buy a stock and sell it back the same day itself if he sees the chances of a gain. As these stocks are traded outside the market there is much room for both experienced as well as inexperienced investors. Penny stocks can actually show you how the market functions and with careful studying of the small cap market an investor can pick up lots of valuable investment tips which suit other stock sectors as well.