Penny Stocks of Startup Companies
A successful company was once a newborn. There are many investors looking for these companies and trust them by looking at their future prospects. Penny Stocks and micro-caps are interchangeable terms. Definitions vary for all but these stocks are low priced with low market capitalization value and are traded in OTCBB or Pink Sheets.
Although these are high risks involved in trading micro stocks, these are considered to be the best investment grades for the researchers. We’d like to discuss the four reasons due to which people don’t trust the new startup company stocks.
- Minimum standards: Penny stocks have no minimum requirements to remain on the exchanges. If a company is unable to maintain its position on the major exchanges, it moves to the smaller exchanges. Some new branches of a previously running company might also move in the pink lists or OTCBB for their new public appearance. The concept of minimum standards is a sort of benchmark and cushioning for some investors to move on in a right direction.
- Information available to the Public: People always look for the new companies having tangible information available. There is not much information available about the micro-caps and the companies displaying their future prospects. The new ethical companies would float the related information online and through other sources to attract more investors and raise funds for a better business.
- Lack of company’s history: The penny stock companies are either new or facing business challenges. The track record of these companies is not easy to find. The lack of history makes it difficult for the buyers to go for the right stocks in terms of their purchase.
- Liquidity rate: The low liquidity level stocks of stocks create a problem in the future of penny stocks. In the time of low liquidity levels, it is harder to sell your stock and then the manipulation begins. Many new companies originate their stocks with the aim of hyping its price and selling it.
Penny stock startup companies might have an ethical ground but they need to prove this fact to the purchasers. There are many companies like General Motors, Walmart, Microsoft, Ford, XeroX and others with a historical background of turning from penny stocks to high-status shares.
Investors need to have a due diligence before purchasing a penny stock. Fundamentals of stocks should be clear as penny stocks are extremely volatile and speculative by nature. Due to their susceptibility to fraud and manipulations, some people are afraid to buy them. However, the right fundamental analysis and picks of startup companies would lead towards a better scope for buying stocks and there would be lesser chances to lose. It is not impossible to seek for the coveted diamond in the rough with in-depth analysis.
Make a list of the startup companies and analyze them in the right way. The companies enlisting very less information about their policies and management would have higher chances to result in losses. Hence, your move should be well-informed and you must take right steps to choose the best penny stocks.