1. A penny stock is a relatively low-price stock which has a low market capitalisation. In India, stocks that trade under Rs.10 fall in this category.
2. There are fewer shareholders, large bid-ask spreads, and limited disclosure of information for these shares.
3. Such stocks have low liquidity. So the price can be manipulated by buying a large lot of shares to create a price spike or offl oading shares to make prices fall.
4. Penny stocks have a higher level of volatility, resulting in higher potential reward and greater risk.
5. Since these stocks are prone to price manipulations, sudden delisting and regulatory scrutiny are added risks.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
