Leverage and Trading 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.
All of the stock experts tell the inexperience traders to put their money into blue-chip stocks and build a portfolio. They always recommend the same companies like Exxon or General Electric. It sounds like a great idea, but the problem is that most new traders don’t have that much money to put into the markets.
For example, let’s say that most new traders have $3,000 to invest in the stock market. If that trader took the advice of most analysts, how much of a portfolio do you think they are going to have? They’ll be lucky to have 100 shares of one of these companies, much less an entire portfolio.
But what if we used that same example for a person just trading penny stocks. Think ho much of a difference that would be. They could buy 4500 shares of 75 cent stock or even better build an entire portfolio of just penny stocks. The trader has diversification at a much lower cost.
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 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.
