Understanding the risks that are involved with an investment is very crucial as this may affect one’s profitability. There are certain risks that are involved with almost every type of investment, and it is important for investors to get themselves educated before they finally decide on which type of investment they would choose.

There are plenty of people who prefer to invest in stocks, because they know that there are lots of success stories about how an individual turns from rags to riches through stock investing. However, the stock market is a very fickle business, and the risks involved are definitely high that one must be brave and courageous enough to take such risks. Knowing how to handle these risks will also greatly help with avoiding unnecessary losses when the market is down.

Even though the stock market is very risky, there are still some investors who are buying penny stocks, which are much riskier compared to the regular-priced stocks. Penny stocks are those which are traded at less than 5 dollars per share, and so owning plenty of them is made more possible even with a small capital. This is actually the reason why there are a lot of investors who prefer to buy these stocks, even though they know how risky they can become.

What are Penny Stocks?

Penny stocks are companies which are starting with their business, and just like any big companies these days, they could be the next big thing in the industry. After all, most businesses come from being small and new. It is with how we choose the companies that we invest with which will matter the most. Thus, if you are planning to invest in penny stocks, then you must be willing to spend time and effort to do some research and find which penny stocks are the hottest, and which companies are more likely to grow in the near future.

Penny stocks are listed in over-the-counter and pink sheet markets. The thing is, the companies that are listed in pink sheet market are not required to file their financial reports with the Securities and Exchange Commission (SEC), and so they are much riskier to buy. It is very important to be very cautious when it comes to choosing the penny stocks that we are going to invest with to minimize our risks. Also, penny stock investors need to monitor their investments from time to time to make sure that they are updated with the fluctuations of prices.

Penny Stock Brokers

Just like any other stocks, we can hire a penny stock broker for trading this type of stocks. There are two types of penny stock broker, and they are discount brokers and full service brokers. Discount brokers are ideal for those investors who are already aware on how to choose the best stocks to buy. Discount brokers do not offer stock tips and investing advice, and so they charge lower fees and commissions.

On the other hand, a full service broker is the one that gives advice when it comes to choosing the stocks to invest with. They charge higher service fees and commissions, and hiring them would mean that we will be spending more on investment costs.