What is a Penny Stocks?
Penny stocks are generally small gap stocks which can be consider as a highly risky investment and also present a potential risk-rewarding opportunities. Penny stocks are the casinos in the stock markets. So while investing in penny stocks you should invest with a small size of your portfolio as it cannot be your primary investment vehicle due to the nature of risk involved.
Penny stocks are more suited for short term investments, or frequent buying and selling with discretionary funds. You cannot expect big funds to come and participate in buying a penny stocks. Most of the players in penny stocks are small time traders, stock market operators. Institutional funds are largely missing in the penny stock space. So liquidity is a major concern in penny stocks.
Locking in circuits are the common behavior in penny stocks. Due to lack of liquidity there might times we you cannot find instant buyers or sellers to liquidate your positions. Penny stocks also have the risk of bankruptcy often and hence one have to plan for risking only the money they are willing to loose instead of dumping money madly on penny stock.
News based investing in penny stocks has to be taken carefully as most of the source based news (Media, Social Media) could be misleading most of the time. Even lots of offloading happens to the general public where the scammers comes and sell you big stories about companies and finally offload the shares to the Victims how are going to believe in their storyline.
One way to approach penny stock is take short term bets or you believe in their strong management and company fundamentals if you want to play a long term game.