Interested in the idea of penny stocks but only have a vague idea about what they really are? Intrigued by those ads that claim by following so and so’s ‘top 10 penny stocks‘ you’ll practically become a millionaire overnight, partying the night away with the rich and famous on a yacht somewhere rather than with the same old faces at the pub? Then it may be time to come back to reality and slow down a little.

The fact is that yes, you can make money with penny stocks. And yes, some people do make a great deal of it. However doing so is not as easy as some of those very flashy web ads proclaim and it is certainly not something that is suitable for everyone. So before you do of chasing those top 10 penny stock lists in the hope of making a fortune with just $10 in your bank account let’s look more closely at some of the pros and cons involved in trading penny stocks at all.

Pros of Penny Stocks

You can get started trading in penny stocks without having huge amounts of disposable income available. Although they rarely actually cost a penny anymore,  penny stocks are affordable, usually somewhere between $1-$5. This does allow the small investor to begin trading almost right away.

Penny stocks can also be real firecrackers when it comes to quick income potential. It has been known for a stock that originally cost $1 to suddenly trade at $10 a week or two later, offering those who bought in at a $1 quite a nice return indeed. Be warned, however, while this certainly does happen it’s not the daily, or even weekly, occurrence that some of those claiming to be able to offer you ‘the best ever top 10 penny stocks’ picks would have you believe.

Cons of Penny Stocks

Like any other stock, penny stocks are risky. The potential is there for trading penny stocks to make you a great return but they can also break you. If a penny stock fails to perform you will have a difficult time divesting it from your portfolio. And while that may be OK if its a one-off and your loss is minimal, but if you are chasing ‘bad bets’ on a regular basis the money you invest can add up quickly, and so can your losses if you fail.

It should also be understood right from the start that, because many penny stocks are not traded via standard channels they are not regulated by the SEC, meaning you have far fewer legal protections than those trading in more traditional stock options do.

None of this is to say you should be put off trading penny stocks if you really want to give them a try. There actually are very good top 10 penny stocks lists out there but the key is to use them as a guide. Once you have one take it and do your own research, take the time to understand the risks involved and then, once you are better informed to make good decisions, decide which penny stocks you best suit you, your budget and your growing investment strategy.