What are Penny Stocks?
Penny Stocks (Penny Stock or Small caps) is a term used to refer to the stocks of small-cap companies listed on the stock exchange. These stocks are traded at very low values, possibly below 10,000 VND/share.
Advantages and Disadvantages of Penny Stocks
Advantages of Penny Stocks
As mentioned, due to their low valuation, penny stocks have the potential to generate large returns for investors when they rise in price.
Disadvantages of Penny Stocks
With such advantages, what are the disadvantages of penny stocks? Low liquidity is a point to consider when buying penny stocks. Accordingly, investors often have to accept the risk of losing everything when trading. Moreover, penny stocks receive little attention from investors, so even when they increase in price, it is very difficult to resell the stock.
Because the company issuing penny stocks is a small company, the transparency of business operations is difficult to ensure, fraud is likely to occur or the business is likely to go bankrupt, leading to losses for investors.
Penny Stock Characteristics
Penny stocks are stocks issued by small companies that are newly listed on the market. Penny stock value is usually under 10,000 VND/share, lower than the par value stipulated in the Securities Law 2019.
Penny stocks have their own characteristics, showing the difference from the Large caps or Mid caps group, specifically as follows:
- Low stock prices, often subject to speculation and price manipulation, and poor corporate control. Therefore, the price difference of Penny stocks is quite unpredictable.
- Penny stocks have low trading volume and are often listed on small exchanges.
- The company's market capitalization is at VND1,000 billion. The issuance of penny stocks is a springboard for businesses to grow, raise capital and list on larger exchanges.
Notes when investing in Penny stocks
Penny stocks bring many opportunities but also come with great risks from unpredictable market fluctuations. Players need to note the following important points when investing in Penny stocks to make effective profits and minimize risks:
- Carefully analyze the market, collect accurate information from many sources. Do not choose Penny stocks based on trends and discussions on forums. Because the risk of being "led by the nose" and information interference is very high.
- Have a specific investment strategy and clear goals when buying Penny stocks. Follow the stop loss principle to ensure financial safety and minimize risks from unpredictable price fluctuations.
- You should not buy stocks that are showing signs of price decline, codes that are showing signs of being warned or about to be delisted.
- Have a clear financial plan, diversify your investment portfolio to reduce risk. Do not put all your money into a single stock.
- Do not be greedy, absolutely do not borrow money to invest in Penny stocks. The investment amount needs to be idle for the long term.
