Pros of Penny Stocks

As suggested by the name, penny stocks refer to the stocks that are traded in pennies. Such stocks constitute a substantial variety of the stocks being traded in the stock markets and form a thrilling domain to identify ‘multi baggers’ or stocks that multifold over the certain period.

Most of the penny stocks to buy now in Canada belong to companies with a smaller market capitalisation; these include smallcap companies with market capitalisation between $ 2 billion and $ 300 million, microcap companies with market capitalisation between $300 million and $50 million and even smaller companies.

These companies provide splendid growth opportunities and can deliver unreal returns if held for a sufficient amount of time. Several instances are available in which people have compounded their wealth, owning companies that eventually became large-cap.

Buying penny stocks can be visualised as purchasing lottery tickets. However, some areas of this lottery can be analysed using technical analysis and fundamental analysis techniques. So an investor can establish the approximate possibility of success, i.e., the stock multiplying by many times. This probability then guides the allocation of that particular penny stock.

Generally, the probability of success in the process of selecting sufficient penny stocks is incredibly low. Several traders and investors target very cheap stocks by allocating a tiny portion of their portfolio to the segment.
Listing below the pros of very cheap stocks;

Low Share Price:

The evident advantage of investing in penny stocks is that they are worth pennies, and thus, even smaller amounts of money can be invested in these stocks.

The price of a share of Warren Buffet’s Berkshire Hathaway is more than $400,000, most the investors worldwide wouldn’t be able to afford even one share of Berkshire Hathaway, but they have the opportunity to buy thousands of penny stock lists with less than 1% of the same capital.

Possibility of multiple returns:

The most significant edge provided by very cheap stocks is that they have the possibility to grow rapidly. Penny stocks give a smart way for retail investors to compound their initial capital, and quite a few highly acclaimed great investors today have been blessed by really cheap stocks in one of the previous bull markets.

Due to a lack of liquidity, institutional investors cannot capitalise on penny stock lists as much as retail investors. In ways, penny stocks provide retail traders with an advantage over institutional traders but with a substantial risk associated.
Short Term Volatility:

For traders operating in the shorter term, very cheap stocks give you a great way to capitalise since they are much more volatile (or have high betas) than their larger counterparts.

The probability of a stock hitting a circuit breaker (a regulatory halt imposed on stocks that contain moved past a threshold percentage on a particular trading day), either the upper or the lower one, is higher for anything stock. This, however, can end up being counterproductive as well.

In situations where the lower circuit or the upper circuit has been hit continuously for a few days, it becomes impossible for traders to exit their positions, triggering them huge losses. This sort of unexpected event should be considered before making allocations in penny stocks.