4.2. Penny-Stock Trading
Penny-stock trading is one of the riskier methods of trading on the stock
market, though, as is usually the case, with higher risk comes greater reward. A
penny-stock is a stock whose price is usually under $1 per share but can be up
to around $3 per share. In order to invest in penny-stocks, one must pay a lot of
attention to their investments. Unlike long-term investment, penny-stock trading
has more of an emphasis on trading and daily upkeep. Because of the inherent
risks and low popularity of penny-stocks, the large stock exchanges do not deal
with these low-priced shares and a penny-stock investment is usually done over
the-counter and through a broker that specializes in such dealings. The basic
tenets behind penny-stock trading are the same, albeit far more difficult to
achieve, as for any stock market investment: buy low and sell high. With penny
stocks at such low prices and the potential for great monetary gains, usually an
investor puts a lot of money in and buys many shares. Although buying many
shares guarantees an investor a substantial profit when the stock price rises, it
also ensures that the investor bears the heavy burden of any losses the company
may suffer [9].