penny stocks

Why Investing In Penny Stocks Is Not A Very Profitable Idea?

Instant money is what people seek nowadays. Whether it is in business or in stocks. Once such example is of penny stocks. These are the stocks where many new investors lose money.

So what are penny stocks?

penny stocks

Source : thebalance.com

Penny stocks are those stocks which are very cheap and have the value less than 1 dollar, but some penny stocks are also 5 dollars. These are traded at a very low price and often have a very low market capitalization. Penny stocks are very speculative in nature. Therefore, these are considered risky.

Though these are considered risky, some of them have the potential of turning a small investment into a fortune. For example, if you buy twenty thousand shares of a penny stock for one dollar each. Even the one dollar increase will make you $20,000 profit which is not possible in large stocks. Large stocks require massive capital, and it’s quite impossible to invest in many shares of them at a time.

What attracts investors to buy penny stocks?

penny stocks

Source : pixfeeds.com

Penny stocks are very cheap, and anyone can buy it. On the other hand, if an investor goes for buying some other large stocks, that will cost him a lot of money.

It is also tough to take an influencing position in larger stocks, whereas, it’s much easier in penny stocks. It’s easy to influence the market by buying more shares of a penny stock.

Who doesn’t like profit?

When it comes to penny stock, less investment might give them higher returns.

Why should one not invest in penny stocks?

High Volatility:

penny stocks

Source : stockstotrade.com

The first and the critical reason which should trigger one for not buying these penny stocks is that these are very volatile.  They are from the small market capitalization companies, with very high volatility, and poor liquidity. They have a low price for a reason. Once you buy them, you entirely rely on their price which changes any time. There are very few people, who are able to take out profit from it, while many just have to sell their stocks at lower prices when they find the market is extremely thin for penny stocks.

Less Transparency:

penny stocks

Source : boardeffect.com

There is a lack of transparency when it comes to penny stocks. Any company can get into it; there are no requirements for the companies regarding corporate governance and quality. Initially, you will find it really hard to find the information about these companies. Also, the research provided on a penny stock is usually a promotional content on the internet. These websites are paid by the pink sheet businesses. If you dig deep, you will find companies without assets, income or revenue trading just like some established companies.

Can you really trust anyone when it comes to your money?

Scams:

penny stocks

Source : sherwinlawfirm.com

Many scammers use penny stocks for get-rich-quick schemes. People often get emails which talk about the next penny stock which will make them millions. They are so rhetoric that one may get convinced to fall in such traps easily.

Conclusion:

All in all investing in penny stocks is not a profitable idea. Chances of you getting profits are very less, but not impossible. To invest or not to invest is up to you.

Author Bio :

Name : Somesh Kumar
Website : https://mantavya.com