Difference between Penny Stocks and Big Stocks
The main difference between penny stocks and big stocks that penny stocks don't cost as much. Have you ever wondered why so many people invest in stocks, but only a few of them end up making money?
If you want to invest in stocks but don't have the desire to spend too much initially; then penny stocks provide an opportunity to invest in a larger number of stocks then otherwise possible. There is a slight chance that you could make a fortune even by investing less. The price of a penny stock is not more than few cents to 5 dollars, that's why they are the idealized choice for many small investors.
The major thing that any investor needs to remember in penny stocks is that he should have extensive knowledge about the small chip companies that are growing or expanding. Most of the time, penny stock companies are not well known. Unlike big stocks where all the profitable market players are usually in news, this not usually true when investing in penny stocks. Penny stocks can be the source of highest losses also. That said, investors needs to exercise due prudence before investing in them.
Availability of Information
As opposed to big stocks, no legitimate information is available about penny stocks. Due to this lack of information, it is pretty simple to manipulate the prices of such stocks by making investors believe anything. The big stocks on the other hand, are shares of more well-known company stocks listed on an index such as NASDAQ. More information is available for do it yourself investors and for trader driven purchases.
Although trading is legal in penny stocks, it is done over the counter. Their share prices are not shown on the NASDAQ, AMEX or NYSE listings. Since investors also can't get alerts about penny stocks through such listings, they can become members of alerts services.
If you are a cautious investor who does not have much knowledge about the market, then it's advisable to invest in big stocks. The reason is that these stocks only enter NASDAQ when their issuing companies meet certain statutory requirements, one of them being the complete disposal of financial information to the investors. The OTCBB does not have any such legal requirements for the penny stocks.
Similarities and Differences
Issuing companies. Penny stocks are issued by companies that don't have much reputed operating history. The same does not hold true for big stocks where the company has been in the business for a long time and has an excellent operating history. The blue chips generally guarantee you steady earnings except when the market is on a downslide. The market capitalization of the company also determines whether it has big stocks or not. A company's operating history can only be considered validity for its big stocks.
Stable income. Penny stocks and big stocks do not offer guarantees of long-lasting high returns. A careful scrutiny into the market conditions and the earnings of a company are important before taking investment decisions.