Penny Shares | The Ultimate Guide For 2021
For most, stock traders, penny stocks mean cheap shares or shares available to trade below $5. But this is not complete information about penny shares.
There are a lot of things to be considered while talking about penny shares. Here we are with the complete information. You may have seen that so many people talk about penny shares.
Some stock traders label themselves as penny stock traders and they claim that they earn a huge amount of profit by just trading penny shares.
But still, many stock traders don't even know the exact meaning of penny shares. They don't know how much benefit these shares can give them. But the curiosity about penny shares never ends up in their mind.
Deep dive into penny shares
Of Course, everyone out there in the market is there for more trading profitability. And if penny shares can give them profits, then why shouldn't they give it a try?
So if you are also among those new traders, looking for more information and guidance about penny shares. Then here you are in the right place. Because here we will let you know what penny shares are. Also, we will explain to you everything related to penny shares.
Why you should trade penny stocks and how much benefit they can give you. What is the right time to trade penny shares? And how to choose the best penny stocks for you? All the information provided will be according to the current market sentiments of 2021.
Understand Penny Stocks
The first thing you need to do is to understand penny stocks and how they work. There is no special treatment given to the penny stocks in the market.
But there are different fluctuation levels for penny stocks as compared to the other stocks in the market. No matter in which market you are trading stocks, you will find that penny stocks have a different status in the market.
From the global market to regional and national stock markets, penny stocks are always considered as a separate set of stocks by the stock market traders. So it is important to know the basics about penny stocks before you spend your money to buy any penny stock in the market.
Basically, according to the general definition, a stock will be referred to as a penny stock if it is valued less or equal to $5 per share. We can say that companies with low share prices are known as penny stocks. This is the general definition used to refer to a penny stock.
However, the US Securities and Exchange Commission changed this definition a few years ago. If we go back in the past few years, we will find that a penny stock was referred to as a share that is equivalent to or less than $1 per share price. But now this value is considered as $5 per share.
Penny Stocks Explained
But there is something more than the share price value. There are thousands of companies with such low prices. Then can we call all of them penny stocks? No, they all are not penny stocks. Because there are some other properties linked with penny stocks.
These properties are high fluctuation, good performance, high volume, liquidity, etc. All of these properties are considered and after that, we can give the status of penny stocks to a company.
Penny Stocks Vs. Blue Chip Stocks
When we talk about penny stocks, the other term that comes to our mind is blue-chip stocks. What do blue-chip stocks mean? Blue-chip stocks are companies that are reputed, high in share price, more in demand, and more importantly, have to invest for the investors.
Such companies are known as blue-chip stocks. So indirectly we can say that penny stocks are just opposite to blue-chip stocks.
Pros & Cons of Penny Stocks
The main point of discussion is what is the benefit of penny stocks? Is it beneficial for you to invest in penny stocks? Well, there are pros and cons connected with everything. The same thing happens with penny stocks.
There are some pros and some cons associated with it. When we trade penny stocks we can get loss and profit which is subject to the market sentiment, environment, and fluctuations.
Advantages Of Penny Stocks
Following are some of the most popular pros of penny stocks. However, it is not possible to get all the benefits at once from penny stocks. But still, there are many things to consider. Check out these benefits penny stocks can give you.
#1. Low Price Shares
The most common property of penny stock is that it is available at a low price. So you can get more shares with a low amount of investment. You don't have to invest a lot of money to get benefits out of it.
#2. High Gains
You can gain more with less. Yes, you can invest less money in penny stocks, but these stocks can give you high gains. Sometimes penny stocks can fluctuate more than three times to their original value.
Liquidity is always required when we invest our money in any stock. If we talk about penny stocks then they have more liquidity than any other stock in the market.
#4. Short Term Benefits
Many times penny stocks give benefits to the traders in a short period. It is a great thing to have for a short-term trader. If you get a good return on investment in a short period, then it becomes a good thing for you.
Disadvantages of Penny Stocks
If there are advantages then there are some disadvantages associated with penny stocks too. Following are some of the disadvantages that you may face while investing in penny stocks.
#1. No Minimum Standards
There are no minimum standards set by the companies that list their penny stocks. So it becomes riskier for investors to invest in penny stocks.
#2. No Market Reputation or Value
Companies that list themselves as penny stock companies, don't have much reputation or value in the market. So the investor is always under a doubt that he/she is investing in a non-reputed company.
#3. No Public Information
There is not much information about the company and its financial situation is shown publicly.
#4. Chances of Fraud
There are more chances of fraud in penny stocks. Because many new companies promote themselves as penny stocks. They collect crowdfunding and later on their shares don't perform well.
Tips To Be A Successful Penny Stock Trader
Following are some tips for beginners to become successful penny stock traders. If you follow these tips, then there will be more chances to succeed. However, it is recommended to analyze and compare various shares before making any investment.
- Avoid otc market stocks
- Consider volume
- One trade-in a day
- Ignore Ponzi schemes
- Study more about the company before investment
Penny shares or stocks can help you get more profits with less investment. This is what all the traders say and listen about the penny shares. But there are more things related to penny shares. Before investing anything in penny stocks, you must be aware of the financial risks associated with these stocks.
There is no quick rich or overnight rich scheme. So try to avoid promotional campaigns. These campaigns are representing penny stocks as Ponzi schemes. You must have to analyze everything before spending money to invest in penny stocks.
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