Investing in stocks is a great medium to generate high returns and accumulate wealth in the long run. Different investors use different investment strategies to trade in stocks. One investment tactic that works well for new investors or those looking to foray into a new market is penny stocks.
Published on 21 March 2023
OPEN A FREE* DEMAT AND TRADING ACCOUNT
IN 15 MINS*
Penny stocks are traded at a low price and have low market capitalisation. The low market price of penny stocks is the prime attraction for investors. However, it is wise for investors to understand penny stocks, the risks involved, the pros and cons and ways to pick the right penny stocks.
Here is all you need to know about penny stocks.
What are Penny Stocks?
Penny stocks in India are shares of small companies with a stock price of less than ₹10. Penny stock companies have very low market capitalisation and are illiquid. These stocks are listed on a small exchange and are very speculative. Penny stocks in India are not under any national-level stocks exchange.
The lack of liquidity, low market capitalisation, smaller number of shareholders and limited information makes penny stocks a highly risky investment. Even though penny stocks are a high-risk investment, they can turn a small investment into a fortune if the penny stock company performs well. However, it is important to select penny stocks that belong to promising companies.
What are the Pros and Cons of Investing in Penny Stocks?
Cons of investing in penny stocks
Illiquidity: These equities lack a following in the investment world. Because of a low number of buyers, liquidity in penny stocks becomes a concern for investors.
Price manipulation: Traders can also manipulate prices and make the penny stocks appear strong or weak. The price of penny stocks fluctuates rapidly from high to low or vice versa, making them highly volatile.
Lack of information: It is difficult to find the financial history of penny stocks in India. You will find it challenging to assess the financial health of the company you wish to invest in. Further, finding the quotation of penny stocks is also a tedious task, especially if the company is new. There may not be enough financial history or a sufficient track record to judge the financial stability of the company.
Prone to a scam: When trading in penny stocks in India, there is a high risk of running into scammers. Traders can drive up the price of the penny stock and sell it after the price rises sharply.
Pros of Investing in Penny Stocks
1. Possibility of high returns: Sometimes, companies might have the potential but lack financial resources to make it big in the business world.Such penny stock investmentscan generate high and quick returns for investors when the company achieves its potential.
2. Low investment: Penny stocks in India trade at less than ₹10. New investors or investors with limited capital can consider investing in penny stocks to understand the stock market better at low risk of monetary loss.
3. Investment experience: First-time investors or investors looking to enter into a new, unexplored market can invest in penny stocks. These stocks require low capital, and hence, the risk of loss is limited.
How to Pick Penny Stocks?
As an investor, if you want to invest in penny stocks, here are five ways to do it:
Select companies wisely
Companies that offer penny stocks may do so for various reasons, but that does not mean you should choose all the companies. Instead, check the performance and the reputation of the companies as you would do with regular stocks, and then choose some of the most suitable ones where you want to invest in penny stocks. If needed, ask your financial advisor for some help here.
Track the penny stocks
Penny stocks should not be left to sit idle in your portfolio for long and for a good reason, too – this is when an investor is likely to make a loss. Therefore, track the movement of these stocks and buy and sell them accordingly. Since they are quite cheap stocks, the price fluctuation is greater, and the prices often crash drastically.
Keep the penny investments low
Since penny stocks are cheap, many investors are tempted to invest only in penny stocks. However, it is safer if you keep the investment in penny stocks to a certain limit. That way, if the stock market fluctuates in an unpredictable manner, your other investments will hold your portfolio together even as your penny stocks crash.
Sell at the right time
As you may be aware, the volatility of penny stocks is what makes them risky. Do not get greedy and wait for the prices to keep increasing as penny stocks rarely touch such a high. What you can do is set a limit where the price is high enough for a reasonable sell transaction and go ahead with it. This can be a safer way to deal in penny stocks than waiting too long until the prices suddenly drop.
Only invest a limited amount
Penny stocks should not be the most important component of your portfolio; in fact, to play it safe, invest only a certain amount of money that you do not mind losing if your penny stocks crash. This way, you need not let the losses eat into your other investments. Penny stocks should only take up a minor portion of your investments and be more of an experimental investment.
To Sum it Up
Overall, trading in penny stocks is risky. However, if you do proper research and study the markets well, you can reduce your risk and improve your chances of generating potentially quick profits. Also Read: How to earn profits in share market?
Day trading, also known as intraday trading, is the process of buying and selling securities in the stock market on the same day through a margin account. The objective of day trading online is to lock in profits from the movement of stock prices.
If there is one thing the stock market does almost like clockwork, it is swing. Not only do the prices of different stocks in the market keep fluctuating, but so do the corresponding fortunes of the holders of different positions on said securities. Whilst intra-day trading is a commonly used approach to use the swing of the stock market to trade stocks within a day, some traders tend to prefer swing trades.
Though there are numerous opportunities present in the stock market, there are also plenty of risks for those who are not familiar with the market trends. While this does not imply experienced traders do not face any risks, it certainly means that new investors and traders should always learn more about the stock market before starting an investment.
You can buy penny stocks in India online through an authorised online stockbroker.
Penny stocks are a risky investment because of a lack of financial information about the penny companies. Penny stocks are also subject to high market volatility and trader price speculations. The illiquidity of penny stocks is a concern for investors.
Yes, you can make profits through penny stocks if the company you invest in is genuine and generates profits. It also depends on how you trade. Sell the penny stocks at the right time and not overtrade them to generate high returns.
Related Articles
What is Day Trading Margin?
Day trading, also known as intraday trading, is the process of buying and selling securities in the stock market on the same day through a margin account. The objective of day trading online is to lock in profits from the movement of stock prices.
If there is one thing the stock market does almost like clockwork, it is swing. Not only do the prices of different stocks in the market keep fluctuating, but so do the corresponding fortunes of the holders of different positions on said securities. Whilst intra-day trading is a commonly used approach to use the swing of the stock market to trade stocks within a day, some traders tend to prefer swing trades.
Though there are numerous opportunities present in the stock market, there are also plenty of risks for those who are not familiar with the market trends. While this does not imply experienced traders do not face any risks, it certainly means that new investors and traders should always learn more about the stock market before starting an investment.
You can buy penny stocks in India online through an authorised online stockbroker.
Penny stocks are a risky investment because of a lack of financial information about the penny companies. Penny stocks are also subject to high market volatility and trader price speculations. The illiquidity of penny stocks is a concern for investors.
Yes, you can make profits through penny stocks if the company you invest in is genuine and generates profits. It also depends on how you trade. Sell the penny stocks at the right time and not overtrade them to generate high returns.
Sharekhan Comtrade Private Limited (TM) operates the web site accessible from the URL www.myespresso.com (the “web site”').
Sharekhan Comtrade Private Limited is committed to protecting your privacy and utilising technology that gives you the most powerful, safe, online experience that you can get anywhere else.
Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.
Sharekhan Comtrade Private Limited requests the minimum information it believes necessary to achieve this goal.
The following discloses Sharekhan Comtrade Private Limited's information gathering and dissemination practices for the Web Site:
System Data:
Sharekhan Comtrade Private Limited uses your IP address to help diagnose problems with our server and to administer the web site. Your IP address is used to identify you and your shopping cart and to gather broad demographic information.
Registration Data:
The Web Site's registration form may require users to give us contact information (like their name, phone number and e-mail address), unique identifiers (like their PAN Number) and demographic information (like their pin code, age or income level). The Web Site uses customer contact information from the registration form to send the users information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Comtrade Private Limited's partners. The customer's contact information is also used to contact the visitor when necessary. Unique identifiers (such as PAN numbers) are collected to verify the user's identity. Demographic and profile data is also collected at the Web Site. We use this data to tailor the visitor's experience at the Web Site, showing them contents that we think they might be interested in, and displaying the contents according to their preferences. This information is shared with advertisers on an aggregate basis.
Links and Co-Branded Sites:
This site contains links to other Web Sites which are not necessarily been screened or reviewed by www.myespresso.com. Sharekhan Comtrade Private Limited is neither responsible for the privacy practices or the contents of such Web Sites nor shall be held answerable for the inaccurate, inappropriate or offensive data, material, information, products and services that may be viewed on those sites.
Sharekhan Comtrade Private Limited may operate a number of co-branded sites. Policies regarding information collection and sharing may differ on some of these co-branded sites. If you have any particular questions, you should check the privacy statement that appears on each co-branded site.
Order Forms:
The Web Site uses an order form for customers to request information, products and services. The Web Site collects visitors' contact information (like their mobile number or e-mail address), unique identifiers (like their PAN number) financial information (like their account or credit card numbers) and demographic information (like their pin code, age or income level). Contact information from the order form is used to send orders, information about Sharekhan Comtrade Private Limited, and promotional material from some of Sharekhan Comtrade Private Limited's partners to the visitors of the Web Site. The visitor's contact information is also used to get in touch with the visitor when necessary. Financial information that is collected is used to check the users' qualifications and bill the user for products and services. Unique identifiers (such as PAN numbers) are collected from Web Site visitors to verify the user's identity.
Surveys and Contests:
The Web Site's online surveys ask visitors for contact information (like their mobile number or e-mail address) and demographic information (like their pin code, gender, age or income level). The Web Site uses contact data from its surveys to send the user information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Ltd.'s partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below. Demographic and profile data is also collected at the Web Site. The Web Site use this data to tailor its visitor's experience at the Web Site, showing them content that it thinks they might be interested in, and displaying the content according to their preferences. This information is shared with advertisers on an aggregate basis.
Sharekhan Comtrade Private Ltd run contests on the Web Site in which we ask visitors for contact information (like their e-mail address). Sharekhan Comtrade Private Limited uses contact data from its contests to send users information about Sharekhan Comtrade Private Ltd. and promotional material from some of our partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below.
Third-Party Advertisement Servers:
Sharekhan Comtrade Private Limited engages the services of an outside advertisement company to display advertisement on the Web Site. These advertisements may contain cookies. While Sharekhan Comtrade Private Limited uses cookies in other parts of the Web Site, cookies received with banner advertisements are collected by the Advertisement company, and Sharekhan Comtrade Private Limited does not have access to this information.
Protection of your Data and Information:
The privacy and protection of your data and information provided to us is of vital importance. Sharekhan Comtrade Private Limited shall ensure to safeguard the security and confidentiality of any information you share with us. Any personally identifiable information of the customers obtained by us shall not be used or shared other than for the purposes to which the customers consents. However security and confidentiality of information cannot be guaranteed cent percent. Hence despite our utmost efforts to protect your personal information, Sharekhan Comtrade Private Limited and www.myespresso.com cannot warrant the security of any information you transmit to us through our online services. Such transmission of your personal information is done at your own risk.
Disclosure of Customer Information :
Sharekhan Comtrade Private Limited and www.myespresso.com shall not deliberately disclose customer's personally identifiable information to any unauthorized third person, save and except where such information shall be disclosed in good faith and for the purpose of law for the time being in force or to protect the rights and property of Sharekhan Comtrade Private Limited and www.myespresso.com.
Public Forums :
The Web Sites makes chat rooms, forums, message boards and/or news groups available to its users. Please remember that any information that is disclosed in these areas becomes public information and you should exercise caution when deciding to disclose your personal information.
Supplemental Information :
The Web Site supplements the information that you provide with information that is received from third parties.
The Web Site DOES NOT entice by the prospect of a special game, prize or other activity, to divulge more information than is needed to participate in the activity.
Further to the above, in light of the recently notified Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. (Hereinafter referred to as the Rules)
The following shall be deemed to be sensitive information :
Password;
Financial information such as Bank account or credit card or debit card or other payment instrument details;
Physical, physiological and mental health condition;
Sexual orientation;
Medical records and history;
Biometric information;
Any detail relating to the above clauses as provided to body corporate for providing service; and
Any of the information received under above clauses by body corporate for processing, stored or processed under lawful contract or otherwise:
provided that, any information that is freely available or accessible in public domain or furnished under the Right to Information Act, 2005 or any other law for the time being in force shall not be regarded as sensitive personal data or information for the purposes of Rules.
Collection of Information:
Compliance with KYC guidelines as per SEBI / Exchanges / Or any other Act, law or regulation requiring the same and any internal KYC guidelines formulated by Sharekhan Comtrade Private Limited.
In order to provide enhanced trading experience to the client.
In order to provide any further information to be provided to regulators.
Such information may be collected in a manner that the client is always aware of the collection and purported usage of the same. The client shall have an option to withdraw consent to share the information. However such intimation shall be required in writing. Such intimation shall only be taken into account from the date on which the same is received. Sharekhan Comtrade Private Limited may choose to stop services to such a client in case such intimation is received. Such information shall only be used for the purpose it is collected.
Clients would be allowed an option not to disclose any information to be collected, provided the same is in compliance with regulatory requirements.
Disclosure of information:
Disclosure of sensitive information would be as per the terms agreed by the clients. For any change in such terms, the clients would be informed.
Provided no consent may be required in case the same is being shared as per compliance guidelines or as required by regulators.
Any information being disclosed to third parties would be in accordance with the Rules and would be done provided such third party has the same level of compliance guidelines as Sharekhan Comtrade Private Limited.
Sharekhan Comtrade Private Limited shall allow clients to review their personal information and the same shall be allowed to be edited provided exchange guidelines relevant to the same are followed.
Sharekhan Comtrade Private Limited shall maintain reasonable security practices and procedures and maintain a comprehensive documented information security programme. In the event of an information security breach, Sharekhan Comtrade Private Limited or a person on its behalf shall be required to demonstrate as and when called upon to do so by the agency mandated under the law, that there have implemented security control measures as per their documented information security programme and information security policies and information security policies that contain managerial, technical, operational and physical security control measures that are commensurate with the information assets being protected with the nature of business.
KYC Languages
Download Client Registration Documents (Rights & Obligations, Risk Disclosure Document, Do's & Don't's) in Vernacular Language :
Note: "This document is a translated version of the client registration documents in English and is being provided in vernacular language to facilitate better understanding by the investors. In case of any ambiguity, the contents of the English version would prevail."
NDNCR Terms & Conditions
By accepting the Terms & Conditions, you authorise Espresso, its representatives and agents to provide information about various products, offers and services provided by Espresso through any mode, including telephone calls, SMSes, emails, letters and any other mode of communication. You also confirm that laws in relation to unsolicited communication referred in "National Do Not Call Registry" as laid down by "Telecom Regulatory Authority of India" will not be applicable for such information/communication.
Filing Complaints on SEBI Complaint Redress System (SCORES) - Easy and Quick
Register on the SCORES portal
Mandatory details for filing complaints on SCORES:
Name
PAN
Address
Mobile Number
Email ID
Benefits:
Effective communication
Speedy redressal of grievances
You can file complaints on SCORES through https://scores.gov.in/scores/Welcome.html
