Should I Buy Penny Stocks?

Should I buy penny stocks?’ is a question commonly asked by traders looking for a cheaper way to trade. Penny stocks are shares which trade for low values, usually less than £1 or $5 per share, depending on whether the trader is trading on the American or British market. As the shares are so cheap to buy, they are attractive to many and offer an alternative option to the higher investments required in order to trade on the main London Stock Exchange or New York Stock Exchange. Hence ‘Should I buy penny stocks?’ is often asked.

Here, we will not fully answer the question ‘Should I buy penny stocks?’ for you, as we believe that such a decision should be up to you. However, we will present alternative arguments for answering ‘Yes, you should’, or ‘No, you should not’.

 

Yes:

  • Penny stocks are cheap to buy, as the name suggests. So there is a chance that a trader will be able to make a large profit from a small investment, and so answer ‘Yes’ if asked the question ‘Should I buy penny stocks?’
  • By choosing the right penny stocks and timing trades carefully, an investor stands to gain from buying less regulated stocks. There are instances of traders who are now better off as a result of trading penny stocks. One such trader is Tim Grittani, who turned a $1,500 initial investment into a portfolio valued at $1 million in three short years.
  • We should note that there are companies who legitimately wish to trade their shares at low values in order to push up their market capitalisation. The key to successfully trading penny stocks is being able to recognise them.
  • Overall, there clearly are reasons to answer in the affirmative to the query ‘Should I buy penny stocks?’

No:

  • However, a great number of traders would state ‘Absolutely not’ if asked the question, ‘Should I buy penny stocks?’ This is because there are some unscrupulous individuals and organisations out there who seek to make money out of artificially inflating the price of penny shares whilst duping traders.
  • So-called ‘Pump and Dump’ schemes see a company purchase a large volume of cheap stock, sell all the stock to traders who are told that the stock in question is about to dramatically increase in value, only for traders to lose their investment when the prediction fails to materialise.
  • Publicised cases of such occurrences, coupled with the fact that the Alternative Investment Market in the UK and the Over the Counter Bulletin Board in the US are less regulated than their mainstream counterparts, puts many traders off getting involved in penny stocks at all.
  • Hence, the response to ‘Should I buy penny stocks?’ could just as well be ‘No’.

 

We have presented both sides of the argument regarding the question ‘Should I buy penny stocks?’ to you here. Now, it is up to you to reach a conclusion.

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