Penny Stock

Penny stock

Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are traded OTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City.

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penny stock

A low-priced, speculative stock. Although the maximum price at which a security may sell and still be classified as a penny stock is subject to individual interpretation, $1 is probably the most commonly recognized limit. Many penny stocks are traded in the over-the-counter market and on smaller exchanges.

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Penny stock. Stocks that trade for less than $1 a share are often described as penny stocks.

Penny stocks change hands over-the-counter (OTC) and tend to be extremely volatile. Their prices may spike up one day and drop dramatically the next.

The fluctuations reflect the unsettled nature of the companies that issue them and the relatively small number of shares in the marketplace. While some penny stocks may produce big returns over the long term, many turn out to be worthless.

Institutional investors tend to avoid penny stocks, and brokerage firms typically warn individual investors of the risks involved before handling transactions in these stocks.

However, penny stocks are sometimes marketed aggressively to unsuspecting investors.

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Penny Stock

What Does Penny Stock Mean?

A stock that trades at a very low share price and market capitalization; usually it trades off a major market exchange. These types of stocks generally are considered highly speculative and risky because they lack liquidity, have large bid-ask spreads, are small capitalization, and have limited analyst coverage and disclosure. They often trade on the OTCBB and pink sheets.

Investopedia explains Penny Stock

The term is a misnomer, because there are no standard criteria for defining a penny stock. Some consider one to be any stock that trades for pennies or under $5, whereas others consider it to be any stock that trades off a major market exchange. However, there are some very large companies, based on market capitalization, that trade below $5 per share, and there are many very small companies that trade for $5 per share or more. The typical penny stock is a very small company with highly illiquid and speculative shares. The company also generally is subject to limited listing requirements along with fewer filing and regulatory standards. The bottom line is that penny stocks can be risky investments.

Related Terms:
• Illiquid
• Over the Counter—OTC
• Over-the-Counter Bulletin Board—OTCBB
• Nonmarginable Security
• Pink Sheets