Everyone knows someone who has made 100% or even 1000% on a stock and there’s little doubt that the majority of these stories are about buying penny stocks. If you have done any investing at all, you have certainly heard about penny stocks. There is no true definition for a penny stock; it is sometimes described as a stock selling for under $5.00, other times as selling below $3.00, and for others it is a stock selling below the $1.00 mark.

Stocks that sell for under $1.00 (or under $5.00) are a very popular investment vehicle these days. Why are they so popular? It is due to the very thing that makes them penny stocks; their low price. On low priced stocks, it takes a much smaller amount of capital to control a large block of shares. Because of this the possibility for a large percentage gain is greater than it is with higher priced stocks. If you buy a stock that costs $50.00 and it goes up $1.00, you have a 2% gain. If you buy another stock for $1.00 and it goes up $1.00, you have a 100% gain. The penny stock investment would look much better in your portfolio.

However, there are certainly risks associated with these low priced stocks, especially pink sheet penny stocks. These stocks are inexpensive for a reason and tend to be more volatile than higher priced stocks. The company may be new, it may be waiting for a drug to pass through clinical tests, or may be waiting for its mine to start producing. It may have just recently gone through financial difficulties and is attempting to rebound. Most penny stocks will not be big winners and many of the companies may fail, but for many people the risk is worth the potential big rewards.

Before you invest in penny stocks, make certain to do your own due diligence. Even if you are receiving stock picks from a penny stock guru, you should still do your own research on the company. Make sure to keep an eye on the stock everyday so you know if the price is beginning to fluctuate. Penny stocks can be a great way to enter the market without investing too much of your hard earned money. Many people have made good money with low priced stocks and it remains a popular form of investing.