What are penny stocks?

As the name suggests, penny stocks are stocks that are trading for a few penny’s. The official definition determined by the SEC is all stocks that are trading below $5 are penny stocks. Some people find penny stocks attractive. This is mostly based on psychological reasons rather than fundamentals. If you buy penny stock shares, you can buy a lot of shares for a small amount of money. Making it look like you own a lot. Would you rather have 10.000 shares from company X or have 2 shares from company Y? Would you rather have $100.000 right now or $2500 each month for the next 20 years?

Large numbers can be a psychological pitfall making you think you own a lot, or buying something cheap while in reality it’s just a psychological trick. Ever wondered why many products have price tags like $9,97 $4,99 or $19,99 ? Because of the simple reason $19,99 seems less than $20 so people will buy the product more often. While in reality $19,99 and $20 is the exact same value. 

On the other hand, small companies which have a very low share price have the potential to grow very fast. Penny stocks can give much higher gains versus stocks form bigger companies but that also induces high amounts of risk. 

Penny stocks are from small companies that are not listed on major exchanges. Penny stocks are typically traded over the counter (OTC). Meaning the transaction is direct between two parties without an intermediate (exchange). Stocks that are trading OTC typically have low liquidity and less regulations. It also may be hard to find any information about the financials of the company. Since fundamental analysis is crucial for making the right investments, penny stocks are considered highly speculative. That does not mean penny stocks are bad investments but you need to do your homework before buying.

 


Chapters: The Ultimate Investing Guide

Stay informed with my latest content.

Subscribe to my newsletter and receive an email as soon as I add content to PenkeTrading.com.


By clicking Register, you agree to the General Terms and Conditions.

Comments

Join the conversation.

Leave a comment
Penke's Market Notifications
HKDRUB.FOREX
3 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of HKDRUB.FOREX.

HKDRUB.FOREX Daily Candlestick Chart
CHFCZK.FOREX
3 hours ago

I found you a Golden Cross on the daily chart of CHFCZK.FOREX.

CHFCZK.FOREX Daily Candlestick Chart
SUP.CC
20 hours ago

I found you a Overbought RSI (Relative Strength Index) on the daily chart of SUP.CC.

SUP.CC Daily Candlestick Chart
SDT.CC
20 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of SDT.CC.

SDT.CC Daily Candlestick Chart
SCRT.CC
20 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of SCRT.CC.

SCRT.CC Daily Candlestick Chart
PPP.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of PPP.CC.

PPP.CC Daily Candlestick Chart
PLEX.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of PLEX.CC.

PLEX.CC Daily Candlestick Chart
KEYT.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of KEYT.CC.

KEYT.CC Daily Candlestick Chart
HNY.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of HNY.CC.

HNY.CC Daily Candlestick Chart
HEX.CC
20 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of HEX.CC.

HEX.CC Daily Candlestick Chart
HBC.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of HBC.CC.

HBC.CC Daily Candlestick Chart
GSWAP.CC
20 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of GSWAP.CC.

GSWAP.CC Daily Candlestick Chart
GF.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of GF.CC.

GF.CC Daily Candlestick Chart
ESK.CC
20 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of ESK.CC.

ESK.CC Daily Candlestick Chart
erowan.CC
20 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of erowan.CC.

erowan.CC Daily Candlestick Chart
BT.CC
21 hours ago

I found you a Overbought RSI (Relative Strength Index) on the daily chart of BT.CC.

BT.CC Daily Candlestick Chart
ARRR.CC
21 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of ARRR.CC.

ARRR.CC Daily Candlestick Chart
AKN.CC
21 hours ago

I found you a Oversold RSI (Relative Strength Index) on the daily chart of AKN.CC.

AKN.CC Daily Candlestick Chart
XTK.CC
21 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of XTK.CC.

XTK.CC Daily Candlestick Chart
WAXE.CC
21 hours ago

I found you a Three White Soldiers Candle Pattern on the daily chart of WAXE.CC.

WAXE.CC Daily Candlestick Chart
vUSDT.CC
21 hours ago

I found you a Overbought RSI (Relative Strength Index) on the daily chart of vUSDT.CC.

vUSDT.CC Daily Candlestick Chart
THEMIS.CC
22 hours ago

I found you a Overbought RSI (Relative Strength Index) on the daily chart of THEMIS.CC.

THEMIS.CC Daily Candlestick Chart