If you are interested to invest in small cap stocks, and wondering how to define penny stocks? The term penny stock is generally used to portray the stocks of those companies which are small in terms of market capitalization, that’s why these stocks are also termed as small cap stocks. Mostly these stocks are traded Over the Counter Bulletin Board or the Pink sheets. These stocks have very less price, normally even less than $5 per share. After knowing how to define penny stocks, now come to criticism and plus points of penny stocks.
Criticism On Penny Stocks:
These stocks are usually criticized due to the fact of risk, and investment in these stocks is known as higher risky investments. The companies issuing small cap stocks are less regulated and have to meet less rigorous listing requirements. These are the speculative nature stocks, it means the stock’s price may plunge in just few hours and you may lose all your money. More over there are also fraud schemes such as pump and dump, poop and scoop etc.
Plus Point of Penny Stocks investment:
The question may rise in your mind, if penny stocks are much risky than why too invest in them? The key reason of investment in penny stocks is to generate bundles of money. As these stocks have speculative nature, so there are equal chances of increase in price in very short time period. You may call penny stock investment as gambling. It’s not strange that one can earn more than 100% profit in few hours.
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