Also found in: Dictionary, Thesaurus, Legal, Wikipedia.
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.