Buying penny stocks can reap excellent returns on investment, but this market is also full of risks. The amount of risk can be substantially reduced by means of careful research and evaluation of stocks before you buy them, but this process is time consuming and difficult.

There is a new computer "bot" that has been created that analyzes penny stocks thorough in-depth mathematical analysis and by doing so dramatically decreases the risks and increases the profits from buying penny stocks, while greatly simplifying the work of choosing what stocks to buy and when. As you probably guessed, a system this effective comes at a rather high cost, but there is an inexpensive way for even the smallest stock investor to get benefits from it.

Penny stock investing has big advantages when it comes to large, rapid returns on investment, and the fact that penny stocks are priced low enough for even very small investors to buy stocks and have the opportunity for a diversified portfolio. With penny stocks, a change in the price of the stock of just a few cents can mean a large change in the value of the stock on a percentage basis, leading to a large potential return on investment, especially when compared to the usual return on investments with higher valued stocks.

To show the power of penny stock price changes, let's do a comparison. If you wanted to invest $1000 and found a stock you decided to buy at $100 per share, if it increases by $1 per share, you'll have made $10. But, if you took that same $1000 and invested it in a penny stock selling at $1 per share and then it increased by $1 per share, you would earn $1000 on your investment!

Unfortunately, for the same reason that penny stocks can make so much money so quickly, they can also lose a lot of money quickly, which is one of the big reasons you need to be very careful in buying penny stocks. Another reason that penny stock investing is risky is because of shady or outright fraudulent practices of some individuals involved in marketing and selling penny stocks. It is often very hard to get reliable information to really evaluate penny stocks, as companies that issue these stocks are not legally required to file financial reports with the Securities and Exchange Commission.

Various unscrupulous tactics may be used to lure unsuspecting investors into buying penny stocks as a ploy to drive up the stock price and then insiders may quickly sell of their stock at a high price. The sell-off drops the stock value sharply and the investors take a big loss. It is normal for investments with the greatest potential rewards to also have the greatest potential risks, but in buying penny stocks, the relatively large amount of fraud drives the risk much higher than what would occur just from the whims of the market.

In order to reduce the risks of buying penny stocks, it has usually required a large amount of time and effort to evaluate the stocks so that one could avoid the frauds and obtain a good return on investment. A careful penny stock investor could spend quite a bit of time evaluating a single stock. This effort would hopefully pay off in the long-run, but the time required in doing this often made penny stock investing out of the question for part time investors.

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