Panny Stock

What is Penny Stock?

A penny stock refers to the stock of a small company which usually. Trades for less than 100 per share. Although some penny stocks trade on large exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange, most of the penny trades through penny stock counter (OTC) transactions.

Penny stocks

SEBI is an independent federal government agency responsible for protecting investors as they operate fairly and systematically in securities markets.

Penny stocks are usually associated with small companies and businesses which mean they have a lack of liquidity or ready buyers in the market.

As a result, investors may find it difficult to sell the stock as there may be no buyer at that time. Due to low liquidity, investors may have difficulty finding a price that accurately reflects the market.

Due to their lack of liquidity, price quotes, and small company size, penny stocks are generally considered highly speculative. In other words, investors can lose a large amount or all their investments

.

Penny stock price fluctuations

Penny stocks offered on the market are often growing companies with limited cash and resources. Since these are mainly small companies, penny stocks are best for investors who have a high tolerance for risk.

Typically, penny stocks have a higher level of volatility, leading to a greater likelihood of reward and, thus, a better level of inherent risk.

If they buy on margin, investors can lose their entire investment over the counter stock or from their investment.

Buying on margin means that the investor borrows the fund to buy shares from a bank or broker.

Given the level of risk related to investing in penny stocks, investors should take special precautions.

For example,

An investor must have a pre-determined stop order before entering a trade and know which price index to exit if the market moves against the desired direction.

There are stop-loss order instructions, placed with the broker, who set a price range that, when reached, will trigger an automatic sale of securities.

Penny stocks make it risky

Penny stocks provide a way for some small businesses to receive funding from the public. These companies can use this platform as a starting block to move to larger marketplaces.

Furthermore, since they sell at such low prices, there is room for significant upside. However, some factors increase the risk associated with investing or trading stocks.

Securities are generally riskier than more well-established companies known as blue-chip stocks.

A blue-chip is a nationally recognized, well established, and financially strong company. Blue chips typically sell high quality, widely accepted products and services.

Blue-chip companies typically have a history of weathering and operate profitably in the face of adverse economic conditions, helping to contribute to their long record of steady and reliable growth.