What are penny stocks?

I came across people who usually say to me that "Hey! have you seen this stock it's price is so low I can buy more number of shares for the money I have then that of other company whose price is high." and after some time they come and say "Stock market is a gamble".

Have you notice something,These people are ready to invest in a company just by seeing it is lower in price and for them rest all things does not matter and later instead of knowing their mistakes and try to improve it they blame stock market.

Today we are going to talk about one such topic PENNY STOCKS :

WHAT ARE PENNY STOCKS ?

Penny stocks are the stocks which are having price lower then RS 10.These are usually the stocks of the company who are new to the market,having low market capitalization or companies which have done some fraud or companies which are under financial stress.

It is quite a fact that penny stocks are most risky stocks of the market.With higher risk comes the higher return.These stocks might be having potential to give you higher return which attracts most of the new investors or person who is not having knowledge of stock market but it comes at cost of risk.

WHY PENNY STOCKS ARE SO RISKY ?

There are many reasons why penny stocks are risky some of them are :

1 These stocks can be manipulated easily : The penny stocks company have very small market capitalisation so these companies stock price can move really fast by buying or selling of the stocks,so some people might take advantage of this and can manipulate the stocks.

2 Can be delisted from the stock market : These companies can be delisted anytime from the stock market so you might not even get time to sell the stocks losing all your invested money.

3 No regular financial statements submitted : Most of the companies don't even submit financial statements regularly for this reason you will not be able to know what's going on with the company.

4 Weak Fundamentals : Penny stocks are of mostly those companies who might be having lot of debt or of those which are not having cash for operations.

IS IT WORTH BUYING?

In my opinion if you are new investor then you must try to stay away from penny stocks as it might wipe out all your investment as you are not having knowledge to choose company which is worth investing as 9 out of 10 companies of penny stocks are not worthy.It's better to invest in companies of which you are having knowledge about and are having good fundamentals.

Beginners investing in penny stocks is just like gamble in which most of the time you will lose money.

If you think that the company of penny stocks is having good fundamental and will grow in the past then just invest a small part of your money in that stock not the whole money.

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