Penny Stock

AAA

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.

INVESTOPEDIA EXPLAINS 'Penny Stock'

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.

VIDEO

RELATED TERMS
  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 FAQS
  1. Are secondary capital markets beneficial for society, or are there purely speculative?

    Learn why secondary bond markets are essential for both the capital market and economy. Explore the reasons they must be ...
  2. How is a penny stock created?

    Understand how penny stocks are issued and regulated, and learn how these sometimes rewarding but always risky investments ...
Related Articles
  1. Investing Basics

    Spotting Sharks Among Penny Stocks

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

    Spot Hotshot Penny Stocks

    Don't flip a coin to find your next investment.
  3. 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.
  4. 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.
  5. Personal Finance

    How To Identify A Micro-Cap Scam

    Discover how to distinguish a real investment opportunity from a fraudulent one.
  6. 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?
  7. 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.
  8. Investing

    Are These 2015's Most-Promising Small-Cap Stocks?

    At least one of these small-caps should spike in 2015.
  9. Mutual Funds & ETFs

    Why This Small-Cap Utilities ETF is Worth a Look

    PowerShares S&P SmallCap Utilities ETF (PSCU) has been a winner and it’s likely to remain that way barring a broad market crash.
  10. Chart Advisor

    Trade Strong U.S. Small-Caps with this Bargain ETF

    While most investors focus on the Swiss franc, quantitative easing or other global economic indicators, small-cap stocks have been outperforming.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center