Buying Penny Stocks Versus Blue Chips
If you are a person who is familiar with both penny stocks, the general economy and stock market trading fundamentals you could possibly be safer looking for penny stocks to buy than some big blue chips. This is because the large companies have enough clout financially, politically, and economically to manipulate their conditions. Also, other banks and financial (Wall Street) institutions also use these very large corporations as tools in their money making instruments. Penny stocks are simply too small for this type of manipulation.
Now honestly where you gain safety by avoiding large scale trickery, you do open yourself to smaller scale scams because many penny stocks are small enough to have the price manipulated by a rich individual or a small groups of “investors.” These scams however, are generally less sophisticated. They tend to focus on the penny stock ignorant who have no understanding of stock investing or stock trading. Once you see a few pump and dump schemes you’ll be able to see them from a mile away.
Now if you’re a new penny stock investor whose just finished reading penny stock for dummies, penny stocks are probably not going to be safer for you than blue chips because unlike penny stock companies, the larger companies have enough capital and power to keep their stocks generally moving upward year after year. If you don’t want to spend time analyzing, you can definitely earn a mediocre return by investing in the large companies of the S&P 500 or NASDAQ. However, if you are a stock trader who won’t leave their selves exposed to excessive stock risk by following good trading practices won’t have any more trouble with penny stocks than they do with safe companies. By simply limiting your risk on any investment to a few percentage points per trade by using stop losses, diversification, and exit strategies you can take advantage of the greater volatility of the micro-cap market.
If these terms are new to you don’t be scared off by them. Overall the skills to limit risk are fairly basic and available on any good technical trading program, website, or book.
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