Especially, penny stocks are known as small caps, micro caps
and nano caps which are low-priced issues, often highly speculative and selling
less than $1 a share. Initially penny stocks were mostly a matter of derision
but gradually over the years some of them have developed into investment
caliber issues. "Penny stock is a high-risk stock that has a short or
erratic history of revenues and earnings."
The definition of penny stocks refers to the company's
market capitalization instead of its stock price. Market capitalization of a
company is calculated by multiplying it stock price by the amount of shares
outstanding. This number provides you with the total dollar value of all the
shares in the organization at that instance of time.
Penny stocks have a great significance in the life of
investors. With the help of penny stocks investors can incur huge gains in very
short period of time as small as minutes and hours. Though the volatile market
of penny stocks has many drawbacks yet the outweighing positive point is that
investors can incur hefty benefits in nit just few days but in few hours.
Penny stocks are more enticing due to their cost-effectiveness.
Unlike blue chip stocks the penny stocks demand less investment that can go a
lot farther. For instance accumulating 10,000 shares of a penny stock can cost
only $1000 dollars while same number of shares in a blue chip might cost as
much as $10,000,000.
Similarly penny stocks offer the advantage of occupying a
large position in a company for minimum amount of less quantity of money. Just
for example-: a $1000 investment in a blue-chip company will provide the
investor only a negligible share in the overall company whereas the same amount
invested in penny stocks will offer you a complete 1% stake in the public
company. Moreover if over the year that company expands and grows successful,
your profits and shares can simply multiply.
However penny stocks too have quite a few shortcomings. The
foremost disadvantage as is the volatility of the market. If on the one hand
the volatility is beneficial for the investor on the other hand it can be fatal
too. Investors can incur huge losses if the market fluctuates in an unwanted
way. Due to the high-risk factor involved many investors completely stay away
from investing in penny stocks and few others invest only a small amount of
money in it.
Another drawback is that unlike stocks such as NYSE or
NASDAQ, listed on more global exchanges, penny stocks have less financial
disclosure requirements and release less reliable financial information in
comparison to its other big counterparts. Moreover lack of easily accessible
and trustworthy information about these companies provides space for temporary
establishment of sham companies that can deceit and harm the investors.
These tips would be definitely helpful to all of you to know
briefly about penny stocks market before
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Tips about Penny Stock Investing