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What is 'Penny Stock'
Definition: Penny stocks are those that trade at a very low price, have very low market capitalisation, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs 10. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, large bid-ask spreads and limited disclosure of information.
Description: In western markets, shares that trade below $1 are usually called penny stocks. But this basket also includes stocks priced under $5. Penny stocks are highly risky, but some of them also have the potential of turning a small investment into a fortune. For example, if you own 50,000 shares of a penny stock priced at $1, even a $1 rise in the share price can give you $50,000 in a single day. This is not possible in the case of a large stock, because it would require large capital to buy such a large volume of shares. There are a lot of downsides to penny stocks too, as they are prone to price manipulations, sudden delisting and regulatory scrutiny. One can move the stock by buying thousands of shares and create a spike without leaving any cue for the average investor to know whether the spike in price is genuine or manipulated. Also, penny stocks are more prone to scams, as they are often not regulated by a national-level stock exchange. Because of all these risks, stock exchanges put these types of stocks in a different category, called as trade-to-trade basket. In this category, no intraday share trading is allowed. Transactions have to be compulsorily settled on gross basis, which means you must deliver the shares on the same day if you have sold them or take delivery if you have bought them.
Description: In western markets, shares that trade below $1 are usually called penny stocks. But this basket also includes stocks priced under $5. Penny stocks are highly risky, but some of them also have the potential of turning a small investment into a fortune. For example, if you own 50,000 shares of a penny stock priced at $1, even a $1 rise in the share price can give you $50,000 in a single day. This is not possible in the case of a large stock, because it would require large capital to buy such a large volume of shares. There are a lot of downsides to penny stocks too, as they are prone to price manipulations, sudden delisting and regulatory scrutiny. One can move the stock by buying thousands of shares and create a spike without leaving any cue for the average investor to know whether the spike in price is genuine or manipulated. Also, penny stocks are more prone to scams, as they are often not regulated by a national-level stock exchange. Because of all these risks, stock exchanges put these types of stocks in a different category, called as trade-to-trade basket. In this category, no intraday share trading is allowed. Transactions have to be compulsorily settled on gross basis, which means you must deliver the shares on the same day if you have sold them or take delivery if you have bought them.
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Remember this before you buy that high-flying penny stockApart from this, leap years too have seen a lot of volatility. Statistics show that Indian markets face drawdowns of about 25% every 3.5 to 4 years. 2024 is a leap year and this pattern too adds up to the overall market volatility.
Remember this before you buy that high-flying penny stockApart from this, leap years too have seen a lot of volatility. Statistics show that Indian markets face drawdowns of about 25% every 3.5 to 4 years. 2024 is a leap year and this pattern too adds up to the overall market volatility.
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Penny stocks vs high-priced stocks: Which ones are hidden gems?Misconceptions about the stock market often cause investors to miss out on opportunities. High-priced stocks surge to new heights, providing substantial returns, whereas penny stocks frequently lead to losses. Investors should recognize that a stock's price does not always correlate to its valuation and look at the underlying fundamentals.
Penny stocks vs high-priced stocks: Which ones are hidden gems?Misconceptions about the stock market often cause investors to miss out on opportunities. High-priced stocks surge to new heights, providing substantial returns, whereas penny stocks frequently lead to losses. Investors should recognize that a stock's price does not always correlate to its valuation and look at the underlying fundamentals.
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