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- Автор : Goltiran
- 29.08.2019
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Penny stock investing ideas for fixed
Inexpensive As penny stocks are traded below Rs. When you invest in a blue-chip stock, you must shell out a lot of money to purchase a huge volume. But with penny shares, you can invest in a huge volume at a fraction of the cost. High returns Most new and small businesses usually start by issuing penny shares. When you invest in these companies before they become successful, you can enjoy massive returns.
If you research in-depth about the company and its finances, you can make huge profits. But to fully realise the potential of the stock, you must stay invested for the long term. Possibility to make profits overnight If the company you invested in suddenly hits the limelight for good reasons, your penny stock investment can grow overnight.
Cons of penny stocks investment Although not all penny shares fail, they have several risks associated with them. Inconsistent pricing While you can make overnight profits with penny shares, it can also go the other way round. Additionally, a lack of information about these shares increases the chances of fraudulent activities.
Therefore, forecasting the prices of these stocks becomes challenging. Even stocks of companies that have a high market capitalisation can be extremely volatile. Low liquidity As penny shares are stocks of small companies, they are not very popular in the market. As a result, they have low trading volumes, making it difficult for you to buy or sell stocks.
Insufficient information It is crucial to research the company and its finances thoroughly before investing. However, finding the right information about their finances, management, and performance can be tricky with small companies. Should you invest in Indian penny stocks? Investing in penny shares can often be a gamble. What exactly are penny stocks? In the Indian context, typically stocks quoting below Rs.
The crux of the story is that these penny stocks are stocks of largely unknown companies with dubious business models. Here is why you should avoid the lure of penny stocks, although they may look quite enticing.. Penny stocks are cheap because that is what they are worth More often than not, penny stocks quote at a very low price because that is what they are worth.
That can be misleading. Also in most cases, these companies indulge in creative accounting due to which the profits tend to be artificially inflated. They are easy instruments for circular trading and you could get trapped What do we understand by circular trading? Here a bunch of brokers enter into an agreement with the promoters to jack up the price of the stock by creating artificial demand. More often than not, if there are A, B and C trading in the stock then one of them will be the buyer or the seller in most transactions.
However, when the markets see the stock consistently getting buying interest and price appreciation, a lot of retail investors tend to get interested. The moment the retail appetite has been built up, these circular traders exit the stock and the retail investors are left holding worthless paper in their hands. Penny stocks tend to move in successful sectors This is where the penny stocks game becomes fairly simple. During the peak of the technology boom, we saw a lot of fly-by-night companies changing their name to look like IT companies.
These companies not only managed to create interest in the market but they also managed IPOs and private placements at inflated valuations. It is only when the dust settles that you realize that you have been taken for a ride. The same thing happened to infrastructure in late Volumes can be created and vanish in a jiffy This is something you get to see quite often in these penny stocks.
You may enter the stock seeing huge volumes and even as you take a position you find buy orders getting withdrawn. Why does this happen? Let us go back to our issue on penny stocks circular trading. Most of the buyers and sellers on the counter are the same circular traders.
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