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If you want to invest early in a penny stock's life, you need to look to the AltX

by , 14 November 2014

If you want to invest in penny stocks, you have two options. You can look at the Johannesburg Stock Exchange's main board or the AltX (Alternative Exchange).

The AltX is part of the Johannesburg Stock Exchange, but its listing requirements are slightly less arduous. This gives younger companies the chance to benefit from listing.

So what are the differences between listing on the JSE's main board and AltX? And how should you approach investing in new penny stocks that have a listing on the AltX?

Let's take a closer look…

The key differences between the AltX and the JSE’s main board

The AltX gives companies the opportunity to list on the stock exchange to raise capital, amongst other things.

And with its less stringent listing requirements, it means that younger growth companies can trade their shares publicly.

There are a few key differences to listing on the AltX for a company compared to listing on the JSE’s main board.

For instance, to get on the main board, a company needs a three-year track record of revenues. This isn’t required to join the AltX.

It only needs R2 million in share capital to join the AltX as opposed to R25 million to join the main board.

And the annual listing fee is less.

This has its benefits to young businesses, David Thornton in Penny Sleuth explains. It means if they’re in their pre-commercial phase they can use the AltX to go public (list) and raise funds (through selling their shares).

This can be advantageous to a young company. It gives business owners access to a bigger pool of capital. It gives the company publicity. And it raises the company’s profile.

Investing in young penny stocks on the AltX

If you opt to invest in a new company on the AltX, you could end up buying into a business that is in a very risky stage of its development.

So if you do invest in a very new company, make sure you understand the risks are higher than if a company was more established.

There are of course opportunities, but you need to understand the risks that come with a small company getting going.

But equally so, getting in at a very early stage could pay off handsomely if the company succeeds.

So there you have it. Why you need to look to the AltX is you want to invest early in a penny stock’s life.

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If you want to invest early in a penny stock's life, you need to look to the AltX
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