What Are Penny Stocks?
Penny stocks are shares of very small companies that trade at very low prices, usually under $5. They look cheap, but they are among the riskiest things you can buy.
Why a low price does not mean cheap
A $0.50 share is not a bargain if the company is worth almost nothing. What matters is the price compared with what the business earns. Many penny stock companies have little revenue and no profit.
Why penny stocks are so risky
- Many trade outside the big exchanges, with fewer rules and less information.
- Low liquidity means you may not be able to sell when you want.
- Prices can jump or crash by huge amounts in a day.
- Many of these companies fail.
Pump and dump scams
Scammers buy a cheap stock, hype it online with fake news, and sell when others pile in. The price then collapses. If a stranger tells you a tiny stock is about to explode, be very careful.
Related terms
Blue chip stocksShares of big, steady, well-known companies.
LiquidityHow easily you can buy or sell without moving the price.
VolatilityHow much and how fast a price moves.
Meme stocksStocks pushed up by online crowds.
Market capWhat the whole company is worth on the market.
StockA small piece of a company you can own.