Penny Stock


DEFINITION of 'Penny Stock'

A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.


Loading the player...


The term itself is a misnomer because there is no generally accepted definition of a penny stock. Some consider it to be any stock that trades for pennies or those that trade for under $5, while others consider any stock trading off of the major market exchanges as a penny stock. However, confusion can occur as there are some very large companies, based on market capitalization, that trade below $5 per share, while there are many very small companies that trade for $5 or more.

The typical penny stock is a very small company with highly illiquid and speculative shares. The company will also generally be subject to limited listing requirements along with fewer filing and regulatory standards.

  1. Speculative Stock

    A stock with a high degree of risk. A speculative stock often ...
  2. National Quotation Bureau - NQB

    A company established in 1913 to compile and publish price information ...
  3. Death Knell Stocks

    The shares of a publicly traded company that is on the verge ...
  4. Single-Digit Midget

    A stock with a price that is below $10 per share. Although there ...
  5. Micro Cap

    A publicly traded company in the United States that has a market ...
  6. Unlisted Security

    A financial instrument that is not traded on an exchange, but ...
Related Articles
  1. Brokers

    3 Penny Stockbrokers You Can Trust

    Find information regarding some of the highest-rated, most trustworthy and most popular stock brokers utilized by penny stock traders.
  2. Investing Basics

    How Do You Find Penny Stocks That Pay Dividends?

    Learn about how investors can use online stock screeners to obtain a list of dividend-paying penny stocks for their consideration.
  3. Investing Basics

    Penny Stocks Vs. Forex: Which Is Right for You?

    Learn more about penny stock trading and forex market trading, and why each investment class appeals to different types of investors.
  4. Investing Basics

    Spotting Sharks Among Penny Stocks

    To protect yourself from an attack, don't swim in this ocean.
  5. Investing

    Spot Hotshot Penny Stocks

    Don't flip a coin to find your next investment.
  6. Investing Basics

    The Dirt On Delisted Stocks

    Listed securities are "the cream of the crop". Find out how a firm can lose that status and why you should be wary.
  7. Active Trading

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
  8. Personal Finance

    How To Identify A Micro-Cap Scam

    Discover how to distinguish a real investment opportunity from a fraudulent one.
  9. Active Trading

    Catching A Lift On The Penny Express

    The popularity of the penny stock market has grown, but are these stocks a safe bet?
  10. Investing Basics

    The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless.
  1. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. Can you buy penny stocks in an IRA?

    It is possible to trade penny stocks through an individual retirement accounts, or IRA. However, penny stocks are generally ... Read Full Answer >>
  3. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  4. Why would a company perform a reverse stock split?

    A company performs a reverse stock split to increase its share price. The desire to increase the share price is usually driven ... Read Full Answer >>
  5. Should I invest in penny stocks or large cap stocks for my retirement portfolio?

    Large-cap stocks are a superior investment option for retirement portfolios compared to penny stocks. Most penny stocks are ... Read Full Answer >>
  6. What are the risks involved with investing in a penny stock?

    Penny stocks are the stocks of companies that trade below $5 and generally off a major market exchange. Penny stocks trade ... Read Full Answer >>
  7. Why is it a bad idea for beginning investors to speculate in penny stocks?

    A penny stock is the stock of a company that trades below $5 and generally trades on the over-the-counter bulletin board ... Read Full Answer >>
  8. What is the difference between a penny stock and a small cap stock?

    A penny stock and a small-cap stock represent the shares of a company with low market capitalizations. However, there is ... Read Full Answer >>
  9. Are secondary capital markets beneficial for society, or are there purely speculative?

    Trading in a secondary market is beneficial to society in various ways. The greatest benefit is that investors in the secondary ... Read Full Answer >>
  10. How is a penny stock created?

    A penny stock, like any other publicly traded stock, is created through a process called an initial public offering, or IPO. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!