What are Penny stocks?

Contrary to their name, penny stocks do not cost pennies per share. Penny stocks generally trade for less than 5 dollars per share and are mostly listed outside of the major stock market exchange. As always, there are exceptions to the rule as some large companies trade under 5 dollars per share, and some small companies trade more than 5 dollars per share.


Penny stocks often trade over the counter through the OTCBB and Pink Sheets, but they can also be purchased the same as any other stock you would buy from a stockbroker. Pink Sheets provides investors with stock quotes on those stocks that are registered with it. The main difference between the major stock market exchange and Pink Sheets is the lack of registration with the Securities and Exchange Commission and lack of listing requirements. This point alone makes investing in penny stocks even riskier.

Penny stocks are risky in the first place because they are tough to unload once you have them. It is hard to get an accurate stock quote on penny stocks. The niche for investing in penny stocks is fairly small in comparison to other stocks, so low trade volumes have a huge impact on the price of shares.

Because of the high risk involved, stockbrokers are now required to provide investors of penny stocks with paperwork detailing the risks of ownership.

Something to look for when researching penny stocks is to be sure the company has legitimate business operations. Take a look at their financial reports online. Don’t forget to review the footnotes for important financial information you might otherwise miss. You can quickly uncover a company’s stability by thoroughly checking their financial status. Placing a quick phone call to the investor relations department of a company is another way to find out if the business is legitimate.

Many investors find penny stocks hard to resist, and if careful researched, they can bring a hefty return on the investment, as much as 1000 percent within 2 weeks.
Many excellent companies trade as penny stocks, and investing in those companies can be very profitable. So do your homework and you may find it is worth your time and energy investing in penny stocks.