Skip to content

What You Should Know About Sub-penny Stocks

For those people who already know enough about penny stocks, it is about time that you also dig deeper and know more about the dynamics involved in penny stocks. If you consider yourself an expert in trading in penny stocks, then at best you have already come across sub-penny stocks. However, for those who may have had enough experience about penny stocks but still lack enough knowledge about sub-penny stocks, it is about time that you know more about these.

To start with, it is best to know the definition of sub-penny stocks. Sub-penny stocks are those stocks that fall under the category of the $1 to $5 range. Therefore, the price involved in sub-penny stocks is practically smaller than that of the penny stocks. Now, given the fact that the prices of the sub-penny stocks do not exceed $5, it should be said that there is much risk when dealing and trading with them. It is risky in such a way that the benefit to be gained here is very minimal.

Taking caution when dealing with sub-penny stocks:

As mentioned, it is important that one should take extra caution when dealing with sub-penny stocks. Not only is the benefit to be acquired here is minimal, it is indeed not worth risking a few of your capital just so you can invest in something that does not really provide you higher capital gains. And if ever you will be experiencing capital loss, one would be able to have higher losses with only the possibility of earning small returns.

However, it may still be a wonder as to why there are still some investors who are still investing in sub-penny stocks. There is only one valid reason why this is so. It is because given the fact that they only have quite a few money to invest, it would not be a big loss for them since only a small amount of cash is involved. The tendency is they wouldnt mind losing such money because it is not at all that significant.

Perhaps there is a valid reason as to why this is so. To an extent, trading in sub-penny stocks would allow us to develop our risk management skills. In this way, you would be able to be keener and more knowledgeable as to when to take risks in the stock market and when to deal. At least you test your risk skills in something that has a low price category such as the sub-penny stocks.

Investing In Penny Stocks

The first question is 'to invest or not invest' in penny stocks. This is largely a personal decision that reflects your risk profile. If have the capacity as well as the nature to take greater risks, you could be looking at penny stocks. If your financial position is not very strong, and you have little spare money to invest, it is better that you keep out of penny stocks altogether and look at established stocks only.

Similarly, even if you have a lot of money to spare but are generally averse to taking risks, it is better that you dont invest in penny stocks. If you are the kind of person, who likes to take risks in order to increase your returns, and can afford to lose some money if it comes to that, then you could look at penny stocks.

Once you decide to invest in penny stocks, you should take care to ensure that your investment has a reasonable chance of giving you good returns. For this purpose, you should look at a number of things such as the penny stock list as well as the reputation of the company and its promoters, past history if any is available, and also assess the fundamentals.

Finance Managers and accountants use the term fundamentals to refer to the intrinsic value of a company. The prices quoted in the share market are the result of many factors such as market sentiment. The fundamentals of the company on the other hand will show you what the company is actually worth. This consists in understanding the real value in terms of the assets and the revenues of the company. If you invest in a company with good fundamentals, the chances of you losing will be greatly minimized.

Another golden rule that is applicable to all shares, but particularly true in the case of penny stocks is the old adage, 'dont put all your eggs in one basket'. This is true even if you have inside information. Inside information refers to private information that you possess about a company that is likely to affect its share value in the short run to a major extent. For example, if you knew that company A is likely to be taken over by a major conglomerate offering a high price to the existing stockholders, and if this is not yet known to the general public, you have inside information. You have information that makes you pretty sure that the share price will rise in the market substantially once this fact becomes known.

So it is usually safe to act on inside information, assuming of course that it is reliable and true. However, even in such cases you should avoid over exposing yourself, particularly in the case of penny stocks. Plans simply fail to materialize, for example, in which case you may be left holding a stock that has little value. Remember that theres many a slip between the cup and the lip.

The next important thing to keep in mind while considering penny stocks is that you may not be able to sell them quickly, particularly if you have a large quantity. So if short-term liquidity is a concern for you, you should avoid investing in penny stocks. It is much easier to sell stocks that are traded on a regular stock exchange and ones that are well known and frequently traded.

To conclude, remember that penny stocks carry greater risks and less liquidity. Avoid over exposure. Invest after investigating. If you follow these rules, are careful, and lucky, you may make a good profit from penny stocks.