Many of us have heard of penny stocks, but what actually is one?
Well, there isn't actually a complete definition of what a penny stock is and the meaning differs by some individuals or organizations.
The Securities and Exchange Commission (SEC) defines the term to be stocks trading for less than $5 per share and regards them high-risk and speculative.
Some set the cut-off level at $3, while others consider only stocks that trade under $1 to be one. It all depends who you are dealing with!
So, lets take a look at a few elements of what some may determine as a one..
Price Per Share
Some consider stocks that trade below $5 per share to be a penny stock and some others consider stocks that trade below $1 to be one.
Exchange Stocks Trade Upon
Stocks trade on a variety of exchanges, such as NASDAQ, NYSE, AMEX, OTC (Over-the-Counter), and Pink Sheets.
Some consider stocks that trade only on the OTC (Over-the-Counter) or the Pink Sheets to be penny stocks. Despite the fact that most stocks might trade for under $1 per share on the OTC or the Pink Sheets, there are also some that trade higher than that. For example there are some that trade above $5 per share or more on the OTC or Pink Sheets markets.
Some consider any company beneath a certain market cap, such as a market cap under $50 million as a penny stock. But, a stock that has a market cap under $50 million may not be trading under $5 per share, some maybe trading much higher than that.
Sure, there are plenty of stocks that trade under $5 per share with a market cap under $50 million.
But, there might also be a stock that trades over $5 per share with a market cap under $50 million that maybe poised for massive growth. There might also be a stock with a market cap of $2 billion that trades for $.90 per share.
As you can see it is a bit difficult of putting an absolute definition of what a penny stock actually is.
For me I consider penny stocks to be shares that trade below $5 per share and must be under a certain market cap. But, that doesn't mean I just look for opportunities for stocks trading under $5 per share, I also look for stocks that may trade above that and are ready for massive growth.
I typically look for companies of the highest quality that are small or micro cap companies. These trade between 0.01 to $5 per share and trade on the NASDAQ, NYSE, AMEX, OTCBB (Over the Counter Bulletin Board), and Pink Sheets.
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