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Penny Stocks - 5 Things you must know before investing

The penny stock marketplace is a volatile playing field. Arm yourself with the best information and tactics to make an informed decision. Make it a point to understand the following 5 points before entering the penny stock arena. For more detail visit here@ http://smallcapfirm.com/<br>

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Penny Stocks - 5 Things you must know before investing

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  1. Penny Stocks: 5 Things you must know before investing

  2. The penny stock marketplace is a volatile playing field. Arm yourself with the best information and tactics to make an informed decision. Make it a point to understand the following 5 points before entering the penny stock arena: 1. Examine value, not share price: Compared to conventional stocks, penny stocks are sold at low prices, usually at $5 or less per share. Such low prices tempt investors to put all of their investment into just one stock. Do you think this is worthwhile? No. As an investor, you should evaluate how good a particular penny stock is before putting money into it. You would do this with a regular stock, so why not with a penny stock?

  3. 2. Low volumes equal low liquidity: Most penny stocks trade at low volumes. This means if you are ready to sell and exit, you may not find buyers. Therefore it makes sense to invest in stocks with high volume as these enable liquidity. The demand from buyers is what determines liquidity. 3. Upper and lower circuits: Every penny stock has an upper and lower circuit. An upper circuit sets the limit for a stock price, meaning it cannot go up beyond a pre-determined percentage. This level is between 5% and 10%. Lower circuit means a penny stock cannot drop by a specified percentage. You should be aware that you cannot double your money in a short time span with penny stocks. A particular stock may have an upper circuit for a couple of days and drop to the lower circuit if the demand from buyers is low.

  4. 4. Promoters/Brokers may manipulate share prices: Due to their low volume, share prices may be manipulated by market participants such as company promoters and stock brokers. For example, if a penny stock reaches the upper circuit every day without any information about the company, it is obvious that someone within the company is manipulating the price. If you hear positive information about a company and feel the future indications are good, invest in the company regardless of whether it hits the upper circuit or not.

  5. 5. Turn a deaf ear to success stories: • Many stock brokers, blogs, and websites publish success stories about particular penny stocks. • These look tempting and realistic but no one is going to mention whether investors lost money. • Many brokers charge a high fee giving recommendations about penny stocks that have jumped by 500%. • As an investor, do not fall for this trap because you will lose money. • Investigate on your own why a stock has increased, the reasons for doing so and the company’s future prospects. • Investing in the penny stock market is a highly risky affair. By familiarizing yourself with the points listed above, you can make sound investment decisions.

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