September 19, 2025
8 mins read
Penny stocks are an intriguing area of the stock market - not so much in terms of transparency or liquidity, but for their potential to soar with a timely rumor. What's allure in penny stock investing lies beyond financials; sharp price swings provide an opportunity for quick profits. Their low liquidity level means that news about those companies can cause drastic price movements - up or down. Here you can learn to play your cards right and claim great rewards.
Penny stocks may seem like a bargain - but caveat emptor! Despite the higher potential returns, these low-price securities clearly require your careful consideration. The discounted price tag of penny stocks often reflects their increased volatility and lack of liquidity, making for an adrenaline-filled ride if you choose to invest. Are you ready to roll the dice?
Penny stocks are a unique corner of the market. Their main allure isn't strong financials.
Instead, it's the chance for prices to change quickly. This volatility can create chances to make quick money.
A lot of the time, their low price means they're riskier. It shows investors that the market is unstable and not very liquid.
For a company's shares to be traded, it must first meet the criteria set by the Securities and Exchange Board of India (SEBI). Indian exchanges have different trading segments for securities.
Penny stocks are often found in the "Z" category. This segment is for companies that have issues with low market capitalisation or poor liquidity, making them inherently riskier for public investment.
Here are some of the defining characteristics of penny stocks.
These stocks typically have very few active buyers and sellers. This is known as low trading volume.
Because of this low volume, selling your shares quickly at a fair price can be quite difficult.
The low share price means that even a small upward movement can result in a very high percentage return.
This potential for outsized gains is what attracts many high-risk investors to these particular types of securities.
A "multibagger" is a stock that provides a return of more than 100%. Penny stocks have this potential.
A small, unknown company could develop a successful product, causing its stock price to multiply several times over.
The prices of these stocks are notoriously volatile. They can be heavily influenced by market rumours or speculation.
This makes their price movements extremely difficult to predict based on fundamental analysis alone, adding to their risk.
For several reasons, penny stocks are more volatile than other types of stocks. Look at the following reasons responsible for their incendiary nature:
Firstly, because they are unlisted and traded over-the-counter (OTC), there is less transparency concerning the underlying company's financials. It increases the risk investors may take when investing in these stocks as less information is available to assess the company's performance.
Secondly, penny stocks usually have lower levels of liquidity (i.e., fewer investors are trading in and out) which can lead to sharp price swings as news about the underlying company circulates through the market.
Lastly, many penny stock companies are either very small or unprofitable, so their share prices can be sensitive to news and rumors, leading to very volatile prices.
Penny stocks have been known to ignite the imaginations of investors with their volatile behavior.
Penny stocks are, in fact, volatile, high-risk investments. But, these little gems have been known to shoot up in value and reward investors with returns bigger than their wildest dreams – if you know how to pick them out. With careful selection and knowledge of small-cap companies, you can make huge gains from penny stock investing while diversifying your portfolio like an expert investor!
Additional Read: How to Select Penny Stocks?
Investing in these stocks comes with a distinct set of potential rewards and significant risks.
High Growth Potential: They are often small, new companies. If they do well, the growth can be very big.
Affordable Share Prices: The low price per share makes it easy for investors to buy a lot of shares with little money.
Quick Returns Possible: Because they are so volatile, prices can go up a lot in a short amount of time, giving you a chance to make quick money.
High Risk of Loss: Investors can easily lose all of their money because the chance of failure is so high.
Not enough information: It's hard to find reliable data on these small businesses because they aren't always well-researched.
Penny stocks can be a great way to diversify your portfolio and increase profits from stock investments. If done correctly, investing in penny stocks can bring about many rewards, including the potential for high returns on low capital.
Compared to larger and more established companies, the low cost of penny stocks means that you can get started investing with much less capital. You don't need a large sum of money to begin investing in penny stocks, making them attractive to investors who may not have the resources or experience to get involved in bigger stock markets.
Penny stocks can offer much higher returns than traditional stocks, as they are more volatile and often move quickly in price. You could make significant profits if you can identify the right penny stock at the right time.
Unlike larger companies, which need to go through a series of approvals before any decision can be made, penny stock companies primarily operate under the radar. It means that they can make decisions quickly and easily, which could give investors an advantage in profiting from short-term opportunities.
Here is an example of a penny stock that did well. Investors in Tine Agro and Kaiser Corporation are reaping huge benefits, with the two agri-products trader and printer scrip recording 725%/720% gains. Following a surge to Rs 31.8 on March 7th from its Dec 2021 baseline of Rs 6.8, it's clear that savvy investors have identified serious potential for growth within these companies.
These refer to when someone buys a large number of stocks and then promotes them to the public to push up stock prices. When the stock prices become artificially high, they sell their stocks and make a profit while leaving other investors with worthless assets.
Insider trading is another risk associated with penny stocks. It is when people within the company use their insider knowledge to buy and sell the stock before the information becomes public.
Liquidity refers to the ability of a market to facilitate buying and selling at any given time. Penny stocks might have low liquidity due to the low trading volume and lack of buyers and sellers. As a result, finding buyers or sellers for your shares at any given time may be difficult, which could result in losses.
Penny stocks are not regulated by the Securities and Exchange Commission (SEC), which means
Compared to more extensive stocks, fewer analysts often cover penny stocks and less information available to the public. It means that investors may not be able to get a complete picture of the company's financial position or prospects.
In 2018, Indian regulators SEBI and NSE were shocked to discover a troubling scheme involving Transgene Biotek Ltd. - its promoters had been utilizing pump-and-dumps tactics to fraudulently inflate share prices without informing investors about the company's financials. Unfortunately for many involved, these fraudulent practices cost them nearly $4 million overall - underscoring the need for tightened regulation of penny stocks across India.
Regarding penny stock investing, prudent decision-making and various factors can help determine the best stocks and enable you to make the most out of your investment.
While they are known to be volatile, tracking their price behavior can alert you to any significant changes in their prices. It's important to note that penny stock prices can also jump up or down drastically due to news or company updates.
To determine a good penny stock investment, it's essential to understand the company's financial ratings and overall performance. Also, look out for the company's management team and their track record with other organizations.
Thorough research is vital before investing in any penny stock. Always read through its historical growth rate, income statement, balance sheet and cash flow statements before investing in the stock.
Diversification can be critical for penny stock investments. Investing a portion of your funds into stocks from different industries and companies can help reduce risk and increase potential profits from these stocks.
It's always wise to check the shareholding pattern of any company before investing in it. If many promoters hold on to the stocks, you can deduce that they believe in their potential and prospects. Assessing the success of a company's promoter and non-institutional investors is key to ensuring its long-term growth. Knowing who these actors are can help us understand how quickly the firm may increase in value.
Before buying penny stocks, ensure an exit strategy is in place. Also, it's essential to keep abreast of the current market trends and news to make timely decisions when required.
With these guidelines in mind, you'll be one step closer to choosing the best penny stock for your portfolio.
Penny stocks can be bought and sold in segments like any other stock. Here is how you can start investing in penny stocks in three simple steps:
Step 01 : Open an account by finding a broker who can serve your needs. Take into account the ease of transferring funds and fees. For example, some brokers offer a commission per share basis or flat rates for the first set of shares. And different for each additional share. It is not a good structure for penny stock traders. Instead, opt for a broker that provides a low-flat rate.
Step 02 : Determine what stocks to trade. For this, you can use screening tools provided by the OTC market, and here, you can easily filter your choices.
Step 03 : Get your financial journey started.
Penny stocks can look good to investors who want to avoid traditional blue-chip stocks. These highly volatile securities have the potential to deliver significant returns, but their speculative nature means any investment carries substantial risk. There is a chance of a reward, but there are also risks that need to be carefully thought about and a high tolerance for market volatility.
Share this article: 
No Data Found
While it is possible to make a profit, it is risky. Because of the high volatility and low liquidity, losses are just as likely, if not more likely, than gains. Many investors lose money on penny stocks.
You can buy and sell them like you would any other stock through a regular broking account. But not all brokers may let you trade in all penny stocks, especially those in the "Z" category or those that don't follow the rules.
You can use stock screeners on broking sites or financial sites to find them. You can look for stocks that meet certain criteria, such as having a low share price, a small market capitalisation, or being listed on an exchange.
Penny stocks are shares of small public companies that trade for very little money, usually below a certain level set by regulators. In India, this usually means stocks that cost less than ₹10.
They work like any other stock, but they are more volatile and less liquid. Market sentiment and speculation, not the company's financial performance, often determine their prices. They are traded on public exchanges like the BSE and NSE, but they are often in a riskier group.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
Please Enter Mobile Number
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
