Stock graph with upward trend, symbolized with a penny

Want to start investing but don’t have a lot of money to invest? Many people in this dilemma turn to penny stocks. Penny stocks are small-capped stocks available at a low price.

They’re called “penny stocks” because they’re affordable — these stocks cost less than $5.

However, many traders should proceed with caution.

The reason why penny stocks are available at a low price is that these stocks belong to either new companies or companies going bankrupt. If you play your cards well, you can gain a pretty penny from a penny stock.

Here are the rewards and risks of penny stock trading.

The Rewards

Even though there are many risks, millions of people play penny stocks. That’s because penny stocks have the power to reap some serious rewards. Here are some benefits of penny stocks.

They Can Turn an Investment

While penny stocks don’t usually turn a huge investment, they can turn a little bit of one. If you play your cards right, you can gain a little bit of an investment.

Read this guide about penny stocks and know some secrets of the trade.

A Company Can Turn Wealthy Quickly

While many penny stocks are large companies going out of business, many penny stocks include smaller companies or smaller industries getting big.

They may not be worth a lot when you buy the stock, but they can become worth a lot over time.

Take Monster Energy, for example. In 1996, Monster’s stocks were only available for four cents. Today, Monster’s stocks are worth $68. If you traded your stock in today, you could gain a nice set of cash.

Another benefit of this is a penny stock’s value changes in a few days, not years. If you invest in a relatively new industry, such as marijuana, its stocks can increase in a matter of days.

You Only Pay in Dollars and Cents

One of the many factors that attract traders to penny stocks is they’re not losing a lot.

You’re only paying spare change for a stock that has the potential to gain lots of money. In addition, you can purchase more shares with penny stocks and have more of a potential to grow.

This is also a good idea for a beginner learning how to trade stocks — they don’t need to invest a lot to learn.

Risks

While penny stocks have many benefits, they also have many disadvantages. Here are the risks of penny stocks.

You’ll Likely Lose Money

Penny stocks are notorious for their volatility. Since most penny stocks are from bankrupt companies, you’ll more than likely lose money. Beyond that, investing in penny stocks comes with fees and taxes.

There Are Scams

It’s also easy to find scamming penny stock brokers. Reputable penny stock brokers are hard to find because most reputable brokers don’t participate in penny stock trading.

Most scammers will charge higher commission rates and may even lie to you.

Not Many People Trade

Another reason why you’ll likely lose money on penny stocks is not many people are trading them. By the time you can trade your share, your share will probably lose value.

Will You Start Penny Stock Trading?

Penny stock trading has its advantages and disadvantages. Weigh the pros and cons before you start investing.

Before you start trading stocks, you need to get over your fear of talking about money.