Trading in the stocks and shares market is one of the easiest ways to make your money start to work for you. Rather than leaving your cash to gather dust in a savings account that earns very little interest, you can take advantage of the changes in an ever-growing industry to make a profit through securities and business assets. However, as anyone who has looked at the stock market or trading world before will know, there’s more than one way to get involved.
One option that’s often very appealing to beginners, but dangerous when used incorrectly, is the penny stocks. A penny stocks list can give you access to dozens of low-cost assets to get involved with, without spending a lot of money. You can access various securities, and potentially get in on the ground floor of a company’s astronomical growth. But this kind of trading has its risks.
The Risks of Investing in Low-Cost Stocks
Everything has a price. If you’re going to be paying less for potentially valuable stocks, then you need to ask yourself why that is. The most common reason that you’ll be able to buy securities and shares for a lower than usual price, is that the business you’re buying from still isn’t well established. This means that the company could easily go bankrupt before you’ve had a time to make any money. Additionally, penny trades have earned a bad reputation over the years, because they’re frequently at the center of “pump and dump” schemes. That’s what happens when promoters push up buzz about an asset, and traders start to sell undervalued stocks for a profit. Eventually, the price of the share plummets.
Sometimes, you can even purchase low-cost stocks from marketplaces that aren’t properly regulated. This means that there’s nothing to protect you from scam artists carefully manipulating the market to make a profit. While exchanges like the NYSE have requirements in place to ensure that only a certain quality of company can advertise their shares for sale, over-the-counter and other trading environments aren’t nearly as well protected. It’s important to avoid buying and selling through dangerous environments if you don’t want to put your cash at risk.
How Diversification Helps
The good news is that although low-cost trading has its risks, there are ways that you can reduce the threat to your money. For instance, you can begin by diversifying your investment portfolio. This is something that most investors should do – regardless of where they’re hoping to grow their wealth. If you have a thoroughly diversified portfolio, then if one of your investments turns out to be a scam or suddenly loses value, you’ll still have other things protecting your money.
It’s also worth making sure that you understand your risk tolerance levels. The higher your tolerance levels are, the more equipped you will be to handle the threats that come with spending your money on lower-cost assets. Generally, sticking to lower volume investments and being prepared for loss is crucial with penny stocks.