The Great Leverage Advantage of Penny Stocks
The single best perk to trading the penny stock market is the amazing leverage that it provides traders. That’s why there is nothing more perfect trade for new or beginner stock market traders.
Many of the stock analysts always tell new traders to invest their money in well known dependable companies. They tell you to invest in companies like Wal-Mart or Chevron. It’s a great idea but unfortunately most new traders don’t have $50,000 to invest in a portfolio of these kind of stocks.
Being that most new traders are strapped for money, let’s say they open their account with $3000. How far do you think that $2000.00 is going to stretch when investing in these kind of blue-chip companies? Not very far. They probably wouldn’t even be able to buy 100 shares of one of these companies.
Let’s use this same example and see how well it works if the trader just invested penny stocks. Think how far that money would stretch. They could buy 6000 shares of one 50 cent stock. He could even build an entire portfolio of penny stocks with that kind of money.
This is where the leverage comes in. Not only could you invest more shares and make your dollar stretch a little longer, but the risk to reward ratio is so much better for penny stocks.
What kind of return could you possibly expect to get from stocks like Target or Microsoft? It won’t be a whole lot more.
Companies like this already enjoyed their growth spurt. They are full grown companies now. These are the kind of the stocks that people hope to get a steady return of 10% a year, if they are lucky.
But when you’re talking about penny stocks, there is no denying how much growth potential they have. Certain penny stocks have gone up as much as 500% a day.
