What Are Penny Stocks And How Do They Work?

In simple words, penny stocks are stocks which are cheap and low priced, in general, stocks which are trading below $5 are considered as penny stocks….🌺

According to SEC (Securities and Exchange Commission of US), stocks below $5 are considered as penny stocks…

Almost all retail investors including me like penny stocks because of their potential to give high returns in a short period of time….🌺

And that’s why penny stocks are always a trending topic among retail investors…..

Hello! I am Ashish Chahar and through this, I am going to cover all the popular queries about penny stocks, so keep reading till the end…..🌺

Types of Penny Stocks

There are mainly two types of penny stocks:⤵️

  1. Liquid Penny Stocks: These type penny stocks have huge daily trading volume and as a result, buying and selling is really easy in these types of penny stocks and that’s why they are call liquid penny stocks…..🌺
  2. Illiquid Penny Stocks: These type of penny stocks have really less trading volume and because of this, they are illiquid & risky too because due to low volume, making and especially exiting existing buy position can be really difficult, ultimately causing loss to the investor….

Examples of Penny Stocks

ARDX, SVRA, etc. are some examples of penny stocks and i included these because these two stocks are currently (when I an writing this post, for latest price check on exchange website, prices may change when you check it) trading below $5….🌺

How Do Penny Stocks Work?

Penny stocks are low-priced stocks having high potential of giving big returns in small period of time and this thing makes penny stocks retail investors favorite….🌺

Retail investors invest money in a penny stock in a hope that it will give them good returns and when they get good profit then they simply exit the position but if the penny stock start to move down then they exit the same position in loss as well….🌺

And that’s how penny stocks….

Where To Buy Penny Stocks?

Penny stocks which are listed on major exchanges like Nasdaq & NYSE, you can buy them through any registered broker like Robinhood, Webull, Fidelity, etc. And it’s the safest way to buy penny stocks….🌺

And penny stocks which are not listed are traded on OTC markets but it’s really really risky to buy unlisted penny stocks, so simply avoid buying through OTC markets…

Can You Make Money Off Penny Stocks?

Yes, you can make money off penny stocks but like other stock market investments, you will make money or not completely depends upon which penny stock you are buying and when you are buying it….🌺

If you are able to find a good liquid penny stock and you are able to enter just before the breakout or uptrend then you can make really good amount of money….

But if you have chosen a bad illiquid penny stock and you have entered at wrong time then chances are high either you will not be able to exit your positions or if you are able to exit then you will exit your positions in loss….🌺

So, whether you can make money from penny stocks completely depends upon which penny stock you are buying and when you are buying it….

What Happens If I Buy A Stock For $1?

There are two things which are going to happen if you buy a stock for $1…🌺

First, if the stock start to move up then you will be in profit and you can see profit on your broker’s platform…

Second, if the stock start to move down then you will start to see loss on your broker’s platform and if you have set stop loss and your stop loss then your positions will be automatically exited by your broker….🌺

How Much Can A Penny Stock Go Up in A Day?

There is not a exact percentage number that a penny stock can go this much up but yes, they can move a lot in a day, I have personally seen many penny stock move 30% and even 50% up in a single day….🌺

So, you can expect that a penny stock can move up 30% to 50% or even more in a single day….

Are Penny Stocks Listed or Unlisted?

Penny stocks can be listed and unlisted too. Listed stocks are traded on major exchanges like Nasdaq & NYSE…🌺

While unlisted stocks are traded on OTC markets which are decentralized market i.e these operate without a central authority, such as a government, central bank, or governing body, that controls or regulates the market’s activities and that’s why they are highly risky….

If you are searching for penny stocks to invest in then make sure to choose listed listed penny stocks which are listed in NASDAQ & NYSE , this is safer than buying unlisted ones….👍

Why is it Hard To Sell Penny Stocks?

It is hard to sell penny stocks because many penny stocks are illiquid and if you buy them then you won’t be able to easily exit your position due to low volume….🌺

And that’s why before choosing a penny stock to invest, it’s important to check whether it’s a liquid penny stock or not, if it’s not then avoid investing in it but if it’s a liquid penny stock then you can move ahead….🌺

In a liquid penny stock you will easily be apple to make and exit a position….👍

So, this was my post about penny stocks, hope you liked it….

Will see you again in next post, till that take care and stay ahead…..

Bye and peace….👍🌺