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Penny stocks 101: What you need to know to start investing in penny stocks

by , 03 July 2015

If you're looking to invest in shares that have terrific future potential, penny stocks are worth considering.

So what are penny stocks? Where can you find them? And how can you invest in them?

Read on to find out…

What are penny stocks?

Penny stocks are shares that trade on the Johannesburg Stock Exchange for less than R10.

Penny stocks are the smaller companies on the stock market. Penny stocks tend to be new, fast growing businesses.

Some companies also end up in penny stock realm as they’ve been through hard times and their share price has paid the price.

With their small size, penny stocks have the opportunity to grow their businesses rapidly over the years. Invest in the most promising ones around and you could potentially make bumper returns over the years.

Penny stocks can be riskier investment opportunities than larger companies as they’re more vulnerable to shocks. Their shares can also be illiquid.

Where can you find penny stocks?

You’ll find penny stocks listed on the main board of the Johannesburg Stock Exchange and the AltX.

Since its inception 12 years ago, the AltX offers companies a less arduous and costly route to investing on the stock exchange. This allows smaller companies to raise much needed capital by listing on the stock market.

On the main board, you’ll find penny stocks, mostly in the Small-Cap Index.

You’ll find penny stocks across all sectors.

How can you buy penny stocks?

As with buying other shares, you need to buy penny stocks through a stock broker.

If you don’t have an account with a stock broker, you’ll need to find a broker offering the services you want with the amount you have to invest. Most stock brokers won’t accept less than R10,000 to open an account.

As well as completing an application form, you’ll have to provide FICA documentation too.

So there you have it. What you need to know to start investing in penny stocks.

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Penny stocks 101: What you need to know to start investing in penny stocks
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