Trading Penny Stocks With Leverage
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.
Most so-called experts of the stock market always tell traders to buy the blue chips stocks and build a portfolio. They tell you to buy stocks like Wal-Mart, Exxon, etc… The problem with that is that most new traders to the market don’t have a $100,000 to invest and build a portfolio full of Microsofts.
To give you an example, lets say that a new trader wants to put in $3,000 into the market. Do you really think they would be able to build much of a portfolio investing in the companies that most analysts recommend? Probably not. They’ll be lucky to buy 100 shares of just one of those stocks.
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 these have already grown to be market leaders. They aren’t exactly hidden gems. Their market value is already in to the price of the stock. It’s the kind of stocks that people are lucky to get 10% return a year.
But when it comes to penny stocks, they have all the room in the world to grow. Some penny stocks have increased in price by as much as 400% in one single day. It’s really not strange for an unknown company to suddenly become the stock market’s new darling.
Filed under: Business