October 3, 2022

 What is Penny Stock In Share Market 

Penny Stock: 

This is the most preferred type of stock among the newcomers to the stock market. What is it that people are more attracted towards Penny Share.Is it even right to invest in it? Or is this not a fake scheme? If you are new to the share market, then you must know this thing.

Never in the last few years have new Demat Accounts been open. Due to this, the number of new investors in the share market has also increased. It is very good that ordinary people are investing in the share market.

But investors also have to see which company’s shares to buy, how is the fundamentals of the company? All these things should be kept in mind while investing, and if you are investing in penny stock then you have to do more research.

So let’s first know what is penny stock?

What is penny stock?


Penny stock Meaning: Penny means coin, meaning you buy shares at the value of the coin, hence they are called penny stocks.

Penny stock Definition: That is, it is usually the shares of a very small company (Small / Micro cap), whose price is very low.

In India, shares of a company priced below Rs 50 are called penny stock and in western countries its price is less than $1.
Many companies are insolvent in penny stock, due to this also their share price is so low. Due to which this type of share is also known by the name of Bhangar Share.

Reasons for Penny Stocks Being Popular

Penny stocks have some reason to be popular among the people. Like,

1) Possibility of getting more returns:

Penny stocks are very small company’s shares, the growth potential of small company is more than other mid cap and large cap. If the company has earned some big profit or some positive news comes, then there is a big increase in the price of their shares. Because of this some people earn good profit in penny stocks.

2) Lowering of share price:

Due to low share price, people are more attracted towards it. Due to the low price, the risk is low. And the chances of the price going up are high.


3) Possibility to be Multibagger:

Sometimes Penny Stocks have become Multibagger in a very short time. Because of this, some good investors in the market have also earned good returns. Because of this, people like these types of stocks more to earn more returns.

Are Penny Stocks Risky?

Usually, small businessmen get money from the public through Penny Stocks to increase their business, or for other reasons. They use this medium to go to the big market place. And Penny Shares are sold at a very low price, due to this there is also a possibility of a sudden jump in the price.

But if the company is going through a bad time or a recession is going on, then it has a very bad effect on its price. This effect can be very bad compared to the stock of blue chips company. Due to this, Penny Stocks are Risky as compared to Blue Chip Company.

The company known as Blue Chip Stock is well established and also financially sound. Due to which they have enough money to survive the bad days of the company, during the recession period. Due to which they are able to face the adverse situation and it does not affect their share price either.

Why do Penny Stocks fail?

Lack of information:

To invest in penny stocks, sufficient information about the company that an investor should get is not available. Or the information that is available is not from reliable sources.

Lack of history:

Some companies considered to be Penny stocks or are newly formed, or some are on the way out of bankruptcy. Many of these companies have a bad track record.With this, you can get an idea of ​​how much loss can be caused to the investors if the right information is not available.

Low Liquidity:

Due to low market cap, there is a lack of liquidity in the market of this type of stock. Due to which if you go to sell in the share market, then you cannot sell easily. Shareholders are forced to sell at a lower price.

Possibility of Fraud:

Low liquidity makes some people prone to price manipulation. Due to which he buys more shares at a lower price. And creates some good artificial atmosphere of the company, due to which the price of the share increases. And try to sell people at a higher price.

As soon as the atmosphere ends, the price comes down. And the people who have bought shares at a higher price, have to sell them at a lower price. This process is also known as Pump and Dump Scheme.

Should you invest in penny stocks?


A hint to the understanding is enough. We have taken an introduction about the risk involved in penny stocks. A good investor does not invest much in penny stocks.

Because they believe that if you want to earn good returns from the stock, then it is very important for the company to be fundamentally and financially strong. But still, if there is scope for future growth of the company, then it is a different matter. If the price of penny stocks of such company is running below the actual price, and the fundamentals of the company are good, then you can think of investing. .

How to Choose Penny Stocks

Check Fundamental:

Before investing, do a fundamental analysis of that company. In which you can check the financial condition of the company, management team of the company etc.

Check Balance Sheet:

While checking you company, it is very important to check the balance sheet of the company so that the financial condition of the company can be known.

Focus on Market Cap and Liquidity:

Pay attention to the increase in the market cap. The higher the number of shares, the higher the chances of getting liquidity. Due to which you can easily sell your shares when you get a higher price.

See future plan:

While investing in penny stocks, it is very important to see the future plan of that company. So that the potential for future growth can be known.

Avoid Bubble Burst:

Sometimes scammers target Penny Stocks in the stock market. They try to increase the share price by spreading false news of the company in the market.

The price goes down as soon as the news ends. Due to which only the investors suffer. While investing in shares, you should check such news so that the truth can be known and you can stay away from such scams.

How to invest in penny stocks?

The process of investing in penny stocks is no different. You can buy it through Demat Account in the same way as you usually buy shares. If you do not even have a Demat account, then you can open your account from one of the brokers given below.

Zerodha

Upstox

Conclusion (What is Penny Stock) 

In this way, we have known what are Penny Stocks and also saw whether we should buy Penny Stocks or not. We hope that whatever important information has been given to you through this post, it will help in understanding Penny Shares. If you liked this post then do share with your friends.

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