What are Penny Stocks?
The word “Penny” means coin which means that things of lesser value can be bought. On this basis this name has been named, which means those Small & Micro Cap companies whose stock price is very low and which can be bought with small amount, such shares are called Penny Stocks.
Actually, it has no Clear Definition, but in the US, any stock that is below $ 5 is considered a penny stock. Whereas in India, stocks below ₹ 50 are included in this category and they are found at the lowest position in NSE & BSE or other small stock exchange.
Top 10 penny stocks in April 2022 (NSE India)
Penny Stocks Explained in Detail
Penny stocks, because of their low price, are used to get trading experience for new traders. These stocks are very low priced, and it is almost risk-free to try your luck with penny stock trading.
Penny stocks are quite popular with small investors because of their potential for huge gains. The gains may be in the range of 300% to 500% or even higher. Even if you have a small investment of Rs 100/-, you can still gain up to Rs 500/- profit.
Why should you invest in penny stocks?
The price of penny stock can be more volatile than other shares. There is no assurance that they will give good returns on investment. The value of penny stocks may go down without any warning. If you want to invest in penny stocks, then follow the rule of “Don’t put all eggs in one basket”.
Penny stocks are characterised by high volatility in prices and do not have any formal listing on the exchange. Penny stocks usually carry high risks when it comes to investment, especially when trading them online.
Penny stocks are considered shares of low value traded on over-the-counter bulletin boards. Unlike regular trading, investors do not buy these securities from the company itself but brokers or dealers. These dealers make a profit by marking up the price of the stock they are selling to you. Thus, they are also known as ‘marketers’.
Penny stocks are generally quoted with two different prices – bid price and ask price. The bid price is the price at which a dealer is willing to buy the security from you, while the asking price is when a dealer will sell you that security. The difference between these prices is called the spread, and it varies with different penny stocks.
The spread indicates how expensive or cheap a penny stock is being traded. The wider the spread, the more expensive it is for investors to buy them, which might translate into higher risks for investors who hope to gain from price appreciation of these securities.
Because of the risk involved with penny stocks, some investors don’t think it’s worth buying shares in them. Others argue they’re fine if you know what you’re doing and have the time to monitor your investments carefully.
Top 10 penny stocks in April 2022 (NSE India)