So, we are talking about Penny Stocks. Let’s start with what is Penny stocks? The term penny stocks is used to describe shares of small companies. They’re also called micro caps if the company has a market capitalization of fewer than 200 crores. So how can Penny stock lovers invest in penny stocks?
How to invest in penny stocks
1. You need to open trading account:
It will give you ease of transferring funds, fees and customer service. Penny stock investors need to focus on fee structure because some broker charge commissions on per share basis
2. Understanding the risk:
Penny stocks are highly risky investment an investor should learn everything about the company before putting their hard earned money.
3. The Bottom line:
When it comes to investing in penny stocks, trade with cautions. See the financial of the company and company should be in the business for several years and their business have a potential to grow in near future.
Now the question is… should you invest in such stocks? Well probably not, the main problems many penny stocks have been one they’re not very liquid. You can sell shares of companies such as Tata Motors or Reliance instantly since there is a huge market for that, whereas penny stocks are for the most part thinly traded and you might be able to find buyers at all in some situations.
Penny Stocks are usually not listed on major exchanges such NSE or BSE but rather on so-called OTC (over-the-counter) bulletin board, where the requirement such as accounting standards that need to be met are considerably lower as such penny stocks are definitely far less transparent than regular stocks and the information you obtain about them should be considered less trustworthy. They are perhaps the most fraud filled financial sector with a lot of unscrupulous brokers engaging with pump and dump schemes through which they make share prices go up by spreading false rumours then sell their shares and let prices drop.
Invest in penny stocks is kind of like being a fish surrounded by sharks or sheeps surrounded by wolves. It probably won’t end well for you and as such staying away is usually a smart thing to do.