What Is the Description of a Penny Stock?
A penny stock trades at a low price from a very small company. According to Investopedia, these stocks are considered high risk because of their highly speculative and liquid shares.
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Function
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Smaller companies have smaller operations and more risks compared to their large, publicly traded counterparts, according to Investopedia. These small companies' stocks trade at a fraction of the price, also known as penny stocks.
Definition
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Penny stocks do not have a generally accepted definition, according to Investopedia. Some consider a penny stock to be any type of stock that trades for pennies or under five dollars. Others consider a penny stock as a form of stock trading off the major market. The Securities and Exchange Commission modified the definition for penny stocks to include shares that trade below five dollars.
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Warnings
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The Securities and Exchange Commission reveals that penny stocks can be risky. These are growing companies with limited resources and cash. Most penny stocks are considered high-risk investments with low trading volumes and are only given limited attention from investors. These stocks can be susceptible to market manipulation.
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References
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- Photo Credit single penny image by Sean Arenas from Fotolia.com
