Penny Stock
Stocks trading below $5 per share, often in tiny companies. Highly speculative, illiquid, and prone to manipulation.
A penny stock is generally defined as a stock trading below $5 per share (the SEC definition), often in small, thinly traded companies. Many trade on OTC (over-the-counter) markets rather than major exchanges.
Penny stocks are risky for several reasons: low liquidity means wide spreads and difficulty exiting, minimal regulatory disclosure requirements leave investors with little reliable information, and they are frequently targeted by pump-and-dump schemes where promoters inflate prices before selling to retail buyers.
A low share price alone does not make a stock a "penny stock" in the risky sense — high-priced shares can be riskier. The real risks are illiquidity and information asymmetry.
Related Terms
Liquidity
How easily you can enter or exit a position without moving the price. High liquidity = tight spreads, deep order books, fast fills.
BeginnerMarket Capitalization
The total market value of a company's outstanding shares. Market Cap = Share Price × Shares Outstanding.
BeginnerStock
A unit of ownership in a company. Buy stock and you own a slice of the business, with rights to a share of earnings and assets.
BeginnerVolume
Total number of shares (or contracts) traded in a given period. Volume confirms price moves — no volume, no conviction.
Beginner