Are penny shares good for novices?

The answer to this question is not as simple as it may first appear. Most people would probably advise against beginning with Penny Shares as a new investor. Certainly, since Penny Shares present not just the promise of a nice profit but also a significant risk, they should be approached with at least a little wariness. There is, however, no real reason why you can’t begin your stock portfolio with Penny Shares if you take the time to figure out what you’re doing first. The return on your investments can quickly build up your investment capital, leaving you free to invest in whatever else you like if you play your cards right.

Why are Penny Shares Risky?

Penny Shares can be extremely volatile. Shares that are worth a mere 10 pence each can quickly rocket to 15 pence overnight on the back of good news. They can also fall back down to 5 pence due to bad news. They can be more unpredictable than regular mid- to high-cap stocks and can often leave people floundering in the wake of a disaster.

There are also a lot of con artists at work in the Penny Shares market who manipulate or dilute stocks for their own gain, and getting caught up with these can be awful. However, there are also a lot of genuine, new companies with great ideas and solid business practices carving their way into the world, and buying Penny Shares in these companies can often make people rich. It can be extremely difficult to know which are the right investments and finding that out is the key to Penny Share trading success.

Starting Out

If you want to get into trading Penny Shares, you will need to do some homework in order to protect yourself against scams. Lots of informational resources exist around the internet that can help you to learn about warning signs or “red flags” that signal a bad investment. You should also use this time before you buy shares to learn more about the market and fill in any gaps in your knowledge. You should aim to acquire as much information as you can regarding how businesses actually work in a financial sense and how stocks work. This information will serve you well as you will be following the actions of a company you invest in based on balance sheets and cash flows. You need to understand what it is you are looking at to be able to spot when an investment is going (or is about to go) sour.

You should also take the time to find a broker who comes well recommended to take care of your buying and selling for you. Remember that using a broker means that you will have to pay his/her fee on top of the price of shares though, and that you will need to pay the commission out of your profits. In order to maximise your earning potential you should always try to buy Penny Shares by the thousand.