What is the Definition of a Penny Stock

If you are interested in investing, you may be wondering what is the definition of a penny stock? Penny stocks have gone up and down in popularity over the past decade, and many different investment professionals have vastly different opinions on whether or not their investors should buy them. It is important that you fully understand what a penny stock is before taking the leap and making the purchase.

A penny stock, by definition, is a stock offered by a small to medium sized company. They typically cost less than five dollars per share of the stock. Some people actually say that the definition of a penny stock is a stock that sells for less than one dollar per share, but no matter what school of thought you read from, it is basically agreed that they are very low priced stocks offered by smaller companies.

Another important facet of penny stocks is that they aren’t seen on the regular stock exchanges for purchase, and they are not monitored by the same governmental agencies that put very strict requirements on traded stocks. This is what makes penny stocks riskier than stocks you can purchase on the regular market.

These stocks are instead traded by in a form considered “over the counter”, meaning you get a price quote for the specific stock and place an order, so to speak. Sometimes, penny stocks can pay off in a huge way, if a client chooses one that hits it big. Often though, people lose quite a bit of money on these stocks by investing a good bit in a stock that they think will take off, but it actually goes down to no value or is pulled from the market. The ability to profit on these stocks is an exciting potential, so people often find themselves interested in the possibility of making a quick profit. They are highly volatile stocks that are traded on markets called “Pink Sheets” (which is a name based on the pink papers they are printed on), and on the NASDAQ.

Some companies have some stocks traded on the large stock exchange but they also offer penny stocks, while others are too small to be traded on a larger stock exchange. No matter the situation, it is important to do your research before buying penny stocks to weigh your risk. Some investors choose to use investment advisors to help them weigh this risk, and some other investors choose to do this form of trading on their own. If you choose to use an advisor, typically they make a commission off of the amount invested, based on a percentage of the profits. If you are an experienced investor it is potentially worth it to do this on your own, but if not, you may want to consult with a professional to help you. If you are still unsure and questioning what is the definition of a penny stock, find a trusted financial advisor to assist you in your investment opportunities.