What are Penny Stocks?

What are Penny Stocks?

Penny stocks are stocks that are priced very low, mostly under Rs 20 per share, and such companies have low market capitalization as well. A company’s market cap is the value of outstanding shares trading in the market.

Features of Penny Stocks 

The features of penny stocks are listed below – 

Illiquid

Penny stocks are illiquid in nature. This means that they are traded much less in quantity as compared to other stocks in the market. By illiquid we mean you might find it difficult to find buyers and sellers for such stocks in the market.

Return

This is a tricky one. Most claim that penny stocks give very high returns, it would be wrong to assume so.

While it is true that since the stocks are priced so low, there is a high potential of the stock prices to go up to a couple of 1,000s and giving you higher and faster returns when compared to companies that have already reached that stage; it is also true that you would then be treading in tricky waters. There is no guarantee that the stocks wil l become multibaggers.

To know at that nascent stage that the stock will give you stupendous returns is like taking a shot in the dark because mostly there won't be much information available.