Penny Stocks - 5 Things you must know before investing

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Penny Stocks 5 Things you must know before
investing
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The penny stock marketplace is a volatile playing
field. Arm yourself with the best information and
tactics to make an informed decision. Make it a
point to understand the following 5 points before
entering the penny stock arena
1. Examine value, not share price
Compared to conventional stocks, penny stocks are
sold at low prices, usually at 5 or less per
share. Such low prices tempt investors to put all
of their investment into just one stock. Do you
think this is worthwhile? No. As an investor, you
should evaluate how good a particular penny stock
is before putting money into it. You would do
this with a regular stock, so why not with a
penny stock?
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2. Low volumes equal low liquidity
Most penny stocks trade at low volumes. This
means if you are ready to sell and exit, you may
not find buyers. Therefore it makes sense to
invest in stocks with high volume as these enable
liquidity. The demand from buyers is what
determines liquidity.
3. Upper and lower circuits
Every penny stock has an upper and lower circuit.
An upper circuit sets the limit for a stock
price, meaning it cannot go up beyond a
pre-determined percentage. This level is between
5 and 10. Lower circuit means a penny stock
cannot drop by a specified percentage. You
should be aware that you cannot double your money
in a short time span with penny stocks. A
particular stock may have an upper circuit for a
couple of days and drop to the lower circuit if
the demand from buyers is low.
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4. Promoters/Brokers may manipulate share prices
Due to their low volume, share prices may be
manipulated by market participants such as
company promoters and stock brokers. For example,
if a penny stock reaches the upper circuit every
day without any information about the company, it
is obvious that someone within the company is
manipulating the price.
If you hear positive information about a company
and feel the future indications are good, invest
in the company regardless of whether it hits the
upper circuit or not.
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5. Turn a deaf ear to success stories

• Many stock brokers, blogs, and websites publish
  success stories about particular penny stocks.
• These look tempting and realistic but no one is
  going to mention whether investors lost money.
• Many brokers charge a high fee giving
  recommendations about penny stocks that have
  jumped by 500.
• As an investor, do not fall for this trap because
  you will lose money.
• Investigate on your own why a stock has
  increased, the reasons for doing so and the
  companys future prospects.
• Investing in the penny stock market is a highly
  risky affair. By familiarizing yourself with the
  points listed above, you can make sound
  investment decisions.

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