WHAT ARE PENNY STOCKS?
Contrary to popular belief; penny stocks aren’t just securities priced under $1. The SEC (Securities and Exchange Commission) defines penny stocks as any stock trading under $5.
As per the SEC’s Penny Stock Rules:
The term "penny stock" generally refers to a security issued by a very small company that trades at less than $5 per share. Penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board (which is a facility of FINRA) or OTC Link LLC (which is owned by OTC Markets Group, Inc., formerly known as Pink OTC Markets Inc.); penny stocks may, however, also trade on securities exchanges, including foreign securities exchanges. In addition, the definition of penny stock can include the securities of certain private companies with no active trading market.
Trading at $5 dollars or less, penny stocks offer you the ability to buy large quantities of a stock for a very low price. It is no wonder; new traders are drawn to the world of trading penny stocks. On the surface, it makes sense why folks are more inclined to invest in these lower priced securities. I suspect, there is some ‘logic’ in believing it is far wiser to buy 10,000 shares of a stock that cost (.25 cents) than 100 shares of a stock that cost ($25 dollars). Or maybe it’s more logical to think that it’s easier for a .25 cent stock to trade up to .50 vs a $100 stock doubling to $200. Whatever the reason, penny stocks tends to attract a lot of new investors and for those reason; I feel it is our obligation to inform you all about penny stock trading.
In this article, I will do my very best to discuss what I think you need to know starting out as a penny stock trader.
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