What is Penny Stock Investing
Penny stock is low price share with broad range of market capitalisation. Though penny stocks’ prices are the same as small cap stocks, mid cap stocks or micro cap stocks, they are different altogether. If small cap stocks are companies with $300 million to $2 billion market capitalization, penny stocks may have as high as $4 billion worth; although their stock prices are similar. This can happen if high market capitalization companies decided to issue many shares or to split their stocks to maintain its attractiveness to stock market investors and traders.But most of the time, penny stocks are new companies that just get listed in the stock exchange. This makes almost all the small cap stocks are penny stocks indeed. Because of their smaller capital base, these companies are generally more vulnerable than larger companies during economic downturn.
Why Investors Get Hooked to Penny Stock Investing
Stock market investors like to make quick gains from its price volatility. Moreover, due to its nature of very cheap in price, stock traders often bought them in very large units. Sometimes, one per cent price fluctuations enough to make millions of dollars.That's how profitable it can be.However, most of penny stocks are under researched and received very low media coverage. Due to not having much publicity, these stocks can be easily syndicated by professional speculative investors. Moreover, it is not easy for average stock investors to verify if the rumours or some ‘insider tips’ are true. And because it was heavily syndicated, regular trend from technical analysis won’t work that easy. Due to these very high uncertainties, penny stock investing can be very risky for novice stock investors.
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