What does it Mean? 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 Says... 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.
