Penny stocks are those shares priced from a fraction of a cent up to around $5. It may seem as though trading them will be cheaper to buy into the investment initially. However, while penny stocks can often yield massive rewards, they are also capable of falling in value equally quickly which increases their level of risk. It's possible to buy them for as little at 25 cents each and watch their price sky-rocket up to $25 in a relatively short time. However, it's also possible to buy stocks at 25 cents each and watch them drop to zero in no time.

This higher level of volatility can often make investors and traders a little wary, but you should remember that these lower priced stocks are usually associated as being shares of smaller companies or newer companies that may have just been listed on the market. While the shares might be cheap right now, newer companies can often have huge potential for growing into large corporations, which drives the price of their shares higher and higher as the company grows. It's these cheaper prices that make penny stocks so attractive to many investors as it's inexpensive to get started. For this reason a trader is able to create a portfolio of them for a few hundred dollars and watch those shares increase in value up to tens of thousands of dollars very quickly. While many traders have made fortunes overnight by trading them, just as many traders have lost their capital when smaller companies vanish overnight.

They can also be ideal for newer traders who want time to learn and study the movements in the share market but don't want to invest a lot of money. The lower entry costs associated with buying lower priced stocks gives them the opportunity to enter the market without needing a huge investment. The big benefit to trading them is that you're able to begin almost immediately. You will need to open a trading account with a share broker and you may need to deposit a small amount of capital into your account to get you started.

For each trade you place, your broker will charge a small fee. Once your account is open you can then begin to investigate as many potential stocks as you want. Take a little time to learn about charting and trends within the market, especially if you plan to continue investing and you'll soon learn more about day trading than you thought possible. So if you're after a low-cost way to enter the stock market and learn how to develop a profitable trading strategy without risking your entire investment, then perhaps penny stocks are the right option for you.