Are you confused between listed and unlisted shares trading? If yes, read more about the pros and cons of choosing an unlisted stock.
- Diversify the risk
- Undervaluation due to low liquidity
- Lower volatility
- Smooth negotiation
Diversify the risk: These allow diversification of the portfolio. These are also known to sometimes outperform in terms of returns compared to the listed shares. There are possibilities for these stocks to get into the stock market and perform well. It is essential to invest in undervalued stock only after evaluating price and valuation metrics to gain significant earnings.
Undervaluation due to low liquidity: These shares are liquid, meaning long-term investors are its customers. This indicates that there is lower demand, and so is the valuation. There are a lot of vacancies to gain from undervalued stock. It is being said that it is easy for those who know the identification of the opportunities. Newcomers must take assistance from an expert for better understanding and learning.
Lower volatility: They are less volatile due to the liquidity. One can notice that these are less volatile when compared to the listed shares. But it is also possible to experience high volatility in case of a wrong investment. As the price hardly fluctuates daily, the demand and supply are not followed as a routine. Reduced financial stress is an outcome as a result of relatively stable prices.
Peace: a hurry to buy sell unlisted shares is absent as not every unlisted item is a not short-term investment and is not always for trading. The days where investors sat and bit their nails have gone as now there is no need to worry about a correct long-term investment.
Patience to wait until the right arrives for buying or selling stocks yields a lump sum amount.
Smooth negotiation: There are innumerable buyers and sellers in the stock market, but there are only a few on the OTC. This means you can negotiate with the intermediary in a relaxed and non-rush manner to fix a price for a particular stock. Who wants to lose higher profits?
- Not regulated: Counterparty risk is higher due to the absence of SEBI guidelines in the trading of unlisted stocks. A scammer may disguise as an intermediary and fly away with your money. You do not have a standard regulatory body to reach out to for help. Also, prices can be subject to manipulation by intermediaries.
- Unofficial: Physical existence of OTC is a dream for the investors as it is merely among the buyers and sellers. Over the counter is unofficial and is a non-regulated body.
We hope you have a basic understanding of the benefits and risks of listed and unlisted shares trading before you decide to buy sell unlisted shares for financial gains. Any investor must ensure to consider the above points and his personal goals before stepping into a realm for the first time and being on a safer side.