We have all heard the term penny stock, and yet it’s doubtful that very many people have actually looked into buying them, and a lot of us don’t even know what they are in the first place.

A “penny stock” is simply a commonly used term for a low cost stock that generally trades under $5, although there are many that literally do sell for pennies on the dollar. Normally, these are sold as a means to raise quick capital for a small company to expand, or in some cases as start-up funds. Therefore, a penny stock is almost always in the high risk category.

These stocks usually fluctuate greatly in price, going way up then dropping dramatically and some of these companies don’t stay in business very long, however a few do end up profitable.

But there can be a positive side, for example you can buy hundreds of shares for a few dollars, if you get lucky you might make some quick money and it is a quick and easy way to get into stock trading.

Always keep your investments in penny stocks under 10% of your total investment strategy, and remember one sobering fact…. there is a 70% chance you will lose money.