The share market is booming, with more traders every day. It works by preying on the greed of every individual. Share markets in every country work under separate rules set by their own country’s regulatory committees. There can be as high as 5000-8000 companies listed on major trade exchanges, like NYSE, NASDAQ, BSE, IDXNASDAQ: IXIC at https://www.webull.com/quote/idxnasdaq-ixic, etc. However, all of them are not attractive to the beginners, owing to the high prices they trade at. Penny Stocks come to the rescue here. Read below to get a full understanding of what penny stocks are.
What are penny stocks?
Penny stocks are shares of the companies that list them at as low as $1. Anything between $1 and $5 is put in the basket of penny stocks. In India, penny stocks’ cost is as less as Rs. 10 and may range from Rs. 10 to Rs. 2000. Some companies listed in the NASDAQ trade at $5 or less and are still listed in major exchanges. Penny stocks, otherwise, are not listed on the major exchanges. These are extremely attractive owing to the cheaper prices. Penny stocks are also called cent stocks in some countries. They are often sold on the illegal pump and dump schemes on pink sheets.
What makes penny stocks risky?
The high illiquidity of penny stocks and the extreme speculative rise and fall of their values make penny stocks riskier, to begin with. However, for a risk-averse individual, the penny stocks can turn to be a good option, especially if there are profits.
For example, if one buys 30,000 shares from penny stocks at Re.1 each, and there is a surge or profit of Re. 1 in a couple of days, the buyer is benefitted 100% and gains a profit of 30,000. This is seldom seen with major exchanges. However, a loss of Re.1 would result in the buyer losing all their money. This is why the penny stocks are riskier than they appear at first.
What does illiquidity mean? Why are penny stocks illiquid?
To be illiquid means not to be able to convert into cash easily. In contrast, anything that can be converted into cash easily, within no time, is liquid. The liquidity of an asset is an extremely important factor to consider before investing in one. Penny stocks do not attract many people who understand the share market because of the volatility and highly speculative rises and losses. Thus, even if there are profits, there will not be enough buyers to sell pink sheets. Hence, there will not be enough hard cash.
For low on cash for initial investments, it is not advisable to invest in penny stocks, for they are extremely volatile and could lead to the buyer losing all their money quite easily. You can check more stocks information at https://www.webull.com/quote/ccc-ltcusd .
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.