What are penny stocks?

1. A penny stock is a relatively low price stock which has a small market capitalization. In India, stocks which trade under Rs 10 fall in this category

2. There are smaller number of shareholders, large bid-ask spreads and limited disclosure of information for these shares.

3. These stocks have low liquidity and hence the price can be manipulated by buying a large lot of shares and creating a price spike or offl oading shares and making the price fall.


4. Penny stocks have a higher level of volatility, resulting in a higher potential reward and a higher level of risk.

5. Since they are prone to price manipulations, sudden delisting and regulatory scrutiny are an added risk.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)