Are Small Caps Worth The Risk?

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Are Small Caps Worth The Risk?

Saturday, June 21st, 2008 Subscribe To Our Feed

Why day trade penny stocks? Its something that many traders ask themselves. There are many ways to make money investing in stocks online however there are none more appealing than investing in microcaps. Like the dream of a huge payoff in gambling, penny stocks often lead investors to lose more than they gain. So why are they so appealing to traders? Its because if done properly, trading penny stocks can make you a lot of money, with minimal risk in a short period of time.

I have always wanted to make money on the stock market, but the return on investing long term in blue chip stocks was low and took years to see my portfolio grow. Yes, I was getting impatient, especially during bear markets like the one we are in right now. Even so called safe blue chip stocks like Worldcom, Nortel, Enron and lately, Bear Stearns have returned investors a portion of their initial investment. Overnight, many of these companies were trading for literally 95% of their value before the fall. Truth is, I wanted to get returns on my investments faster and at a higher rate. My attention turned to penny stocks and I was astonished at how much the daily percentage gains were! It was amazing! And then, a thought popped into my head: What if I day traded these penny stocks?

So what do you look for when investing in penny stocks?

The question that you need to ask is how much risk do you want to put your portfolio at? My suggestion is to start by investing no more than 10% of your total portfolio value. The second suggestion, is to follow the tips we have put together.

The more you increase your risk, the higher the potential for failure, but the higher the potential for reward. When trading penny stocks, its all about the risk/reward tradeoff. However, thats not all. There is much more to day trading penny stocks than just picking a small cap and hoping for the best. How much capital should you risk per position? How long should you keep investing? What should you look for before you buy? How much money can you reasonably expect to make? Should you invest in free penny stock picks?

Before you jump into the world of day trading small caps, put some serious thought into how to best protect your capital. If you lose your capital, its a lot tougher to make money online.

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