If you are a person that takes some interest in the stock market you might have heard about Penny stocks. These stocks can make your fortune and sometimes people loose everything due to these. Penny Stocks means very low priced shares. For a newcomer in the trading market, these stocks seem most attractive. In the initial phase, people have low capital to invest, this situation makes these stocks very lucrative. Today, in this article, we will discuss these stocks and after that, you can decide whether to invest in them or not.
First thing first; What are penny stocks?
Those shares which have very little value are called penny stocks. These stocks are usually associated with low capital base companies and trading in these stocks is also infrequent, meaning they have low liquidity or less number of buyers in the market. There is no definite line that separates penny stocks from others.
Are these stocks a prudent investment?
The risk involved in investing in penny stocks is very high. These stocks are vulnerable to very high volatility in a very short period of time. In such a situation, investors can also become very rich or they may also have to bear heavy losses.
In many instances, it is seen that the promoters are responsible for manipulating the prices of these stocks just to attract the attention of the investors. In such a situation, if you want to invest in penny stocks, then be careful and understand every detail.
Why these stocks are so volatile?
Penny stocks have a very low price, so people with limited money can work together to adjust their prices. Before operating the stock, these people invest money in their own shares and increase their value. When seeing great returns and people investing heavily in these stocks, the prices go up further, after which the operators of the stock pull out with their profits and this cause a sudden fall in the value of such shares.
Things to know before investing in these stocks:
- Avoid investing in penny stocks that continuously touch the upper circuit or lower circuit. Once the money is invested in such shares, it becomes difficult to sell them. If the lower circuit starts continuously, then heavy loss has to be suffered.
- Investment in penny stocks is not gambling. Before investing in penny stock, you should research about the company like in which business this company deals, its future plans, how much profit and loss are being made and what is the trend for that sector. After checking all these parameters you can invest in these.
- Never invest in penny stocks by looking at the price. If a stock is cheap, then you will get more shares for less money this doesn’t mean that you will earn more profit on this. Invest in that stock that is giving good returns even if its price is in thousands.
- If you are trading in penny stocks then don’t get too greedy. If you have earned the profit, book it immediately, otherwise, you may have to face heavy loss.
- Don’t invest a large sum in penny stocks. Diversify your portfolio prudently.