Penny stocks are highly low-priced shares available at a rate of less than $5 per share and sometimes even less than $ 1 per share.
Penny stock investing is full of jeopardy which may or may not bring returns. It is for people who are capable of tolerating risks and downfall of money. Sometimes, the money invested can bring a good amount of profit but it may turn out to be the reverse situation also. Awareness and proper knowledge can help minimize the loss of money.
Just like, every coin has two faces, similarly, penny stock investments have its own benefits and detriments. Only after keeping in mind all the perspectives one should put their money into this business.
Pros and Cons of investing in Penny Stocks
- Less investment, more gain
Due to the low price of stocks, they require very fewer assets and submissions of their documentation. They can bring hefty profits to the shareholder within less time. There are fair chances of becoming rich by putting money in these small-cap stocks.
- Losses are not too high
Since the cost of the shares is less, the losses incurred might be not too high. Lesser the loss, better chances are to think about investing money again. The losses will be less only if the money invested is restricted. Hefty investments could bring hefty losses.
- Profits are made on a rapid basis
These stocks function very quickly as they are provided by developing companies which aspire to grow rapidly. So, with the intensification of the company, the depositor can incur profits. One should choose only those companies who have practically shown a fine growth in recent times and their stocks are not listed among the Dark Market stocks.
- Frauds are quite common
There are many fraud companies offering penny stocks at very low rates which look promising but selling their stocks are a means of looting people’s bounty. Therefore, one should look for certified companies to spend their money on.
- These stocks are highly volatile
Their rates change almost every day and if one day these shares are showing a hike the next day they can collapse too. Investing a large amount of money can bring large losses. It is advised to invest less so that the loss if incurred is also less.
- Information about the companies providing penny stocks is hard to find
The companies providing these stocks are low-profile and expanding companies. They are not listed on the regular stock exchange market. Finding a fair amount of information about them is not so easy to avoid frauds. Staying aware, visiting their website and checking its progress regularly for a well amount of time can help the investor invest in the right place.
- The ‘Pump and Dump’ strategies
This is a scheme used by companies when they purposely increase their profits which is actually fiction to attract customers. After they have taken a good amount from their investors, the customers come face to face with reality which leaves the investors in heavy losses.
Researching and investing wisely should be the criteria of every person who dreams of making money by investing in penny stocks.