Learn what are penny stocks with Advantages & Disadvantages

We have explained what are penny stocks with Advantages & Disadvantages. A penny stock is a low-price stock of small public companies with a low market capitalization. In the US the Securities and Exchange Commission has declared stock valued at under $5. They are not traded on a national exchange to be penny stock. And in the UK it includes anything under the value of £1, and is traded in the general market. A penny stock is called a riskier and speculative investment. This is because the shares of companies are trading at less than $5 per share. These stocks will trade on pink sheets and regulated by the Securities and Exchange Commission with some rules.

The stocks are appealing so before buying the first penny stock it is important to understand what penny stocks are and exactly how work. Penny has multiple terms and definitions. Sometimes it is referred to as penny shares /micro-cap stock. They are associated with a company’s, small market capitalization, and stocks are categorized by their per-share price. they are found outside major market exchanges. So the companies with major exchanges have lower stock prices.

Working

Penny stocks have a trade with any other stock by carrying the risk. The penny stock with low volume makes the investment less liquid. They are susceptible to high prices. Due to low per-share price and smaller market capitalization, the penny stocks carry increased risk. They are made up of unproven companies. These are regarded as illiquid investments as it has fewer shares of these companies trading hands every day. The low liquidity will increase the chance of not finding a buyer and forcing them to sell at an unwanted price. These companies are price manipulators that purchase large quantities of stock and inflate the share price through false.

Trading

Firstly you can buy and sell penny stocks through a brokerage. Some brokerages can charge extra fees for transactions in stocks below a certain price point. You will be charged a commission for both after buying and selling. Different brokerages will offer different cost structures for different types of trades. Shop around for a brokerage that meets your needs, for penny stocks and any securities you see.

Advantages

Every trader will not use penny stock to invest in this at large. Regular investors do not use to invest in these stocks because of fear. This is because of low market capitalization the institutional investors stay away from investing it into the penny stocks.The advantage arises when investors follow a daily plan system with discipline. Then he can make money from the penny shares by learning about the fundamentals. Investors are good at the fundamentals and ready to buy the stocks at low valuations. We can make profits from the penny shares.

Disadvantages

In the penny stock, the fundamentals are not clear. So investors do not get the proper access from the research reports and credibility of the audited reports. The volumes are low for the shares to be traded.

Rules for Investing

We have to diversify the portfolio and have a basket of penny stocks. They monitor the performance on a daily basis. Also, invest in petty amounts only. Then set a strict loss. Also, be suspicious of the research report that paints a picture.

Why Do Penny Stocks Fail

The penny stock fails due to a lack of Information Available to the Public. The information on corporate performance can be difficult to find.

Summary

Penny stocks are considered too risky for the novice trader. Extreme caution is taken while considering the penny Shares.

Intense

What are penny stocks