1. Penny Stock
  2. Purpose of Penny stocks
  3. Understanding of Penny Stocks
  4. Price Fluctuations of Penny Stocks
  5. Penny Stocks Risky
  6. Pros and Cons of penny stock

Penny Stock

An over-the-counter stock generally refers to the stock of a low company that trades for fewer than $5 per share. although some penny stocks trade on massive exchanges like the big apple stock market (NYSE), most trade via over-the-counter (OTC) transactions through the electronic OTC Bulletin Board (OTCBB) or the privately-owned unlisted Markets cluster. there’s no room for unlisted transactions. Quotations also are all done electronically.

Purpose of Penny stocks

  • A over-the-counter stock refers to a low company’s stock that generally trades for fewer than $5 per share.
  • Although some penny stocks trade on massive exchanges like the NYSE, most penny stocks trade over the counter through the unlisted Bulletin Board (OTCBB).
  • While there are sizable gains in commerce penny stocks, there also are equal risks of losing a big quantity of an investment during a short amount.

Understanding of Penny Stocks

In the past, penny stocks were thought of as any stocks that listed for fewer than one greenback per share. The U.S. Securities and Exchange Commission (SEC) has changed the definition to incorporate all shares of commerce below 5 bucks. The SEC is a freelance central agency chargeable for protective investors as they maintain the honest and orderly functioning of the securities markets.

Penny stocks are typically related to tiny corporations and trade sometimes which means they need a scarcity of liquidity or prepared consumers within the marketplace. As a result, investors might notice it troublesome to sell stock since there might not be any consumers at that point. due to the low liquidity, investors may need issues finding a worth that accurately reflects the market.

Due to their lack of liquidity, wide bid-ask spreads or worth quotes, and little company sizes, penny stocks are usually thought of as extremely speculative. In different words, investors may lose a large quantity or all of their investment.

Price Fluctuations of Penny Stocks

Penny stocks offered on the marketplace are typically growing corporations with restricted money and resources. Since these are primarily tiny corporations, penny stocks are most fitted for investors who have a high tolerance for risk.

Typically, penny stocks have the next level of volatility, leading to the next potential for reward and, thus, the next level of inherent risk. Investors might lose their entire investment on an over-the-counter stock, or quite their investment if they purchase on margin, which suggests the capitalist borrowed funds from a bank or broker to buy the shares.

Considering the heightened risk levels related to investment in penny stocks, investors ought to take specific precautions. for instance, an capitalist ought to have an order preset before getting into a trade and understand what price index to exit if the market moves opposite of the meant direction. Stop-loss orders set a worth limit that, once reached, can trigger AN automatic sale of the securities.

Although penny stocks will have explosive gains, it’s vital to own realistic expectations and perceive that penny stocks are insecure investments with low commerce volumes.

Penny Stocks Risky

Penny stocks do offer some tiny businesses how to access funding from the general public. These corporations might use this platform as a block to maneuver into a bigger marketplace. Also, since they sell at such low costs, there’s space for the vital upper side. However, some factors exacerbate the chance related to investment or commerce penny stocks. Securities are typically riskier than undergone corporations called valuable stocks.

A blue chip may be a nationally recognized, well-established, and financially sound company. Blue chips usually sell high-quality, wide accepted merchandise and services. valuable corporations generally have a history of weathering downturns and operating productively in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

Pros and Cons of penny stock


  • Offer an area for tiny corporations to achieve access to public funding.
  • In some cases, penny stocks might offer a way to achieve access to larger marketplace listings.
  • With a lower cost, penny stocks allow a vital upper side in share appreciation.


  • Penny stocks lack a liquid market with few consumers, even perhaps when their worth has raised.
  • There is proscribed info obtainable on the company’s monetary record.
  • Penny stocks have a high chance of fraud and bankruptcy of the underlying company.