Penny Stock

In the United States, the Securities and Exchange Commission generally defines penny stocks as shares trading below 5 dollars, with some exceptions for larger, exchange-listed companies. In the United Kingdom and elsewhere, the term is used more loosely for very low-priced shares.

Penny stocks are often issued by small, young or struggling companies. Many trade over the counter rather than on major exchanges, where listing standards and disclosure requirements are stricter.

For example, a mining exploration company with no revenue might have shares trading at a few cents, attracting investors hoping for a big discovery.

Penny stocks carry high risks. They can be very volatile, hard to sell because few shares trade each day and subject to limited public information. They are also common targets for fraud, especially pump-and-dump schemes, in which promoters push up the price with false hype before selling. A low share price does not mean a share is cheap; value depends on the company's prospects relative to its total market value.