1️⃣ Low Price, High Risk
- Penny stocks typically trade below ₹10 in India or under $5 in the U.S.
- The low price attracts beginners, but they’re extremely volatile and can lose value quickly.
- These stocks often belong to small-cap or micro-cap companies with unproven business models.
2️⃣ Lack of Liquidity
- Penny stocks are thinly traded, meaning fewer buyers and sellers.
- This makes it hard to enter or exit positions at your desired price.
- Sudden price movements can happen with small trade volumes.
3️⃣ Limited Information & Transparency
- Many penny stock companies are not required to disclose full financials or are lightly regulated.
- This makes it difficult to do proper fundamental analysis.
- Beware of false news, paid promotions, or pump-and-dump schemes.
4️⃣ High Potential Returns – But Rare
- Some penny stocks can turn into multi-baggers (2x, 5x, 10x returns).
- But this is rare, and the majority underperform or go bankrupt.
- Only invest a small portion of your capital and be ready to lose it all.
5️⃣ Due Diligence is Crucial
- Research the company’s financials, management, and sector.
- Look for consistent growth, real business activity, and regulatory compliance.
- Avoid tips from forums, WhatsApp groups, or unverified sources.
📌 Pro Tip:
If you’re new to investing, it’s better to stick to blue-chip stocks or mutual funds before exploring penny stocks.
