Penny stock is a share of a public company that is small and not a big corporation, and which has a share price that is low and can be traded at that price. They are also known as micro-cap and small-cap stocks. They are floated by companies who are trying to collect some funds for capital and this type of stock is usually enlisted in small exchanges.
Penny stocks lack liquidity and have low market capitalization. These stocks are also considered as a high-risk option for trading because of their speculative nature, and information that is not enough.
In India, penny stocks are usually sold at a price that is as low as Rs10. So if an investor buys these penny stocks in bulk and with a slight change in the share price, the investor can gain a huge amount in just a day. The investment in penny stocks is usually done for investing in a number of shares as the prices are lower than any other sort of stock.
According to reports in India, penny stocks are mostly non-compliant and non-transparent. Also, traders are well aware that the exit time is sooner for the penny stocks as they look for returns and immediately sell them off. Also, the price of penny stocks is affected by slight changes in the market or any event or news, doing the rounds.
Penny Stock Price & Risks
The usual trend is that the price of penny stocks fluctuates. In most cases related to this type of stock, it is often found that these shares are floated from nascent or growing companies or small companies. These companies have limited cash resources. Also, the volatility of the price is a usual phenomenon and the investor needs to have the knowledge of the exit price, at which the stocks need to be sold to incur some returns. Otherwise, if these are bought on margin, investors have to be aware of the price limit for trading it off. Hence penny stocks are perfect for investors who are willing to take risks with their investment money.
The lack of information about penny stock companies
The companies which float penny stocks are usually small businesses looking to collect funds for capital and move into a larger marketplace. The information about these companies is limited and people do not get enough idea of their operations, services, past history at the market, etc to make that prudent decision needed for investment. Moreover, most of these companies are either nascent or are heading towards bankruptcy. The only boon is the low price of the shares which makes the investors invest in these stocks.
Penny Stock companies & prices in India
There are quite a few companies other than the small or newly formed ones, which float penny stocks in the market for building capital funds. These are namely Vodafone Idea Ltd, NHPC, Manali Petrochemical, HBL Power Systems, and Morepen Laboratories. The price of shares of NHPC usually dwindles between Rs 14 to Rs 34; Morepen Lab stock prices range from Rs 2.5 to Rs 45, and HBL Powe Systems stock prices fluctuate between Rs 10 to Rs 60.
Hence, penny stocks are good for small businesses for accumulating capital funds from the market and for those investors who are risk-takers in the field of trading and the stock market.