As the name suggests, “Penny stocks” are stocks that cost as much as pennies or even lower. These are the cheapest stocks in the stock market. Since the stocks come in pennies, the returns are quite limited and to have significant earnings, one has to buy a lot of them. On top of that investing in penny stocks is usually risky, according to stock market experts. But, also can be a very good investment if handled properly.
If you are planning to invest in the penny stocks then you need to be thorough with their advantages and disadvantages. It is because as with any type of investment there can be pros and cons to investing money with a company. Thus, it is important that you fully understand where you are investing in and what you’re getting involved in.
So, let’s dig deep into it!
Advantages of Penny Stocks
- The very first benefit of penny stocks is their share price. Since you will be buying shares in pennies so you don’t need to invest a large capital to start investing.
- The second benefit of penny stocks is its availability. These stocks are available for the general public to invest in. The low cost allows investors to buy as much as they want. So, if you do a genuine background research or industry analysis and manage your investment wisely, you can have the higher profits on penny stocks investment.
- Most traders and seasoned investors prefer to invest in penny stocks because of their high-volatility. Penny stocks move at quicker intervals. To best understand this, let’s assume you have 1000 shares of penny stock which is trading at Rs. 3.00 and the value just got doubled in overnight then you’ve very easily doubled your returns.
Disadvantages of Penny Stocks
- Despite coming at a cheap price, the penny stocks hold extraordinary risks due to their low liquidity. Where there is the possibility of generating maximum profits, the chances of losing all investment is also equal.
- Since the penny stocks are mostly issued by small companies or startups. So, if the company is near to bankruptcy then the whole investment can be lost in one shot. Also, the risks of prices do not go up associated with the newly established companies.
- “Pump and Dump” scams are also quite popular in penny stocks where some people popularize a stock in order to increase the demand, lead to an increase in price. The end result, that stock will crash and the only ones who take advantage of this are ones who purchased that stock before the scam.
- And lastly, the bothersome disadvantage of penny stocks is their liquidity. It is very difficult to sell large quantities of penny stocks as they are thinly traded on a daily basis on the stock market.
Hope, this article helped you in a way you expected it to be. Penny stocks are quite volatile and any attempt to make good profits out of them without any proper knowledge could leave you penniless. Nevertheless, if you have any query or would like to add something related to penny stocks then don’t forget to mention in the comment section below.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.