Things every beginner investing in penny stock should know
Stocks of small firms whose price is low in the markets are known as penny stocks. The major attraction to penny investors is a lower capital requirement. These are also called nano-cap stocks, micro-cap stocks, and small-cap stocks, depending on the company’s market capitalization. Penny stocks are so affordable that one can purchase stocks at around ₹5 or ₹10. Hence, you might purchase a substantial quantity of stock units from the penny stock list with a small-scale investment. Given the scope of the activities of the companies offering these shares, they face enormous risks. These stocks depend heavily on market conditions to grow their value. As a result, there are higher risks. Still, it is possible to choose a winning penny from the stock market.
How do we choose penny stocks ?
1.Choose the stocks that make sense to you
The first thing you should think about is the number of high risks you are comfortable with because they are fairly affordable. If you think they’re too high-risk, then you should desist from investing in these stocks.
2.Analyze the market
Secondly, to invest in penny stocks, you have to have a good understanding of stock markets. There are various factors that determine the price of stocks such as a war, an election, a natural catastrophe, a change in government policies, the introduction of new technologies, etc. Because these companies are not inherently strong, they respond strongly even to minor events. Consequently, investors with a good understanding of the stock markets are generally better at picking up penny stocks than starters.
Moreover, because the price is low, many companies or even individuals could manipulate the demand for these stocks by purchasing them in bulk. Once the price goes up due to an increase in demand, they sell in bulk also causing prices for our dive. So analyzing the market is very important before investing.
When you start searching for penny shares, you will have hundreds of options. So, first, it is necessary to create a broad set of criteria that can help you identify the industry, sector, etc. To create a primary list of stocks that you want to consider. Then you continue to narrow down the criteria for the final list. Thus, penny stocks can be quite advantageous. But while selecting penny stocks, investors should avoid emotional trading at any cost. It’s easy to be influenced by greed, but investors need to consider their risk appetite and the risk-return ratio of any stock investment.