Penny stock refers to a nano-cap stock that is priced at less than $5 per share, but actually there are also 1 cent or less. Many investors find these low-priced securities attractive as a speculative tool as they allow them to buy many shares, anticipating the potential for appreciation of a much higher price in the future.
In recent days we have talked about penny stocks, but now let’s look in more detail at the pros and cons.
HOW DO PENNY STOCKS WORK?
Penny stocks generally work similarly to normal stocks, but there are important differences of knowing. For example, most penny stocks are traded on the market via the OTC Markets Group (over the counter), which is much less regulated than the NASDAQ or the New York Stock Exchange.
Penny Stocks vs. Other Stocks
Here are the main differences between penny stocks and other stocks:
Penny stocks are priced at less than $5 per share, some at a price of less than $1, and some penny stocks can even be valued at less than 1 penny per share.
Major upside potential:
Because of such low prices, they can have a higher upside potential, but higher risk of losing capital, compared to other stocks, even those already at low prices.
Most are traded on the OTC market:
While other stocks mainly trade on the NYSE and NASDAQ.
Requisiti normativi inferiori:
Lower regulatory requirements:
Low liquidity and increased volatility risk:
Penny stocks tend to have low liquidity because they are typically traded infrequently. This can increase the risk of price volatility, making it difficult for penny stock investors to find the price that accurately reflects the market value. In addition, insiders generally retain most of the capital of a penny stock, making them able to dictate the direction of prices.
As mentioned above, since penny shares are offered at an extremely low price, and since they tend to be less traded, these can be more volatile than conventional shares. For this reason, investors thinking about buying penny stocks should use caution, because the potential for large gains is also provided with the potential for deep monetary losses.
EXAMPLES OF PENNY STOCKS:
Penny stocks are not well known in the investment community and many of them fail. But there are a few penny stock examples that have become billion-dollar businesses.
Among the most famous are Amazon, Intel, Ford Motors, Monster Beverage and many others.
Pros & Cons di Penny Stocks
While it is possible to make significant gains with Penny stocks, it is important to assess the unique risks that make them unsuitable for many investors. As with any other type of investment, investors must be aware of the pros and cons before buying.
So, we said that one of the biggest advantages is that you can buy at a very low price; they have the potential for high performance; the gains are often quite fast.
They are not always very easy to find because they often refer to companies with rather low balance sheets; rather high risk precisely due to the prices of penny stocks subject to fluctuations, especially in the short term; rather high risks of speculation, because so many investors buy them and then dump them as soon as the price drops.
How to choose Penny Stocks?
Always carefully look at the analysis provided by your bank’s website (Banca Intesa in Italy, for example, has a very good online trading service with documentation for almost all stocks on the major markets (European, US etc. )
It’s from Banca Intesa’s online banking site that I generally download charts into the stock analysis in my portfolio. For other countries, ask your bank about investing online.
Le informazioni contenute in questo articolo sono esclusivamente a fini educativi e informativi. Non hanno l’obiettivo, né possono essere considerate un invito o incentivo a comprare o vendere un titolo o uno strumento finanziario. Non possono, inoltre, essere viste come una comunicazione che ha lo scopo di persuadere o incitare il lettore a comprare o vendere i titoli citati. I commenti forniti sono l’opinione dell’autore e non devono essere considerati delle raccomandazioni personalizzate. Le informazioni contenute nell’articolo non devono essere utilizzate come la sola fonte per prendere decisioni di investimento.