What is Penny Stocks?

When the first time I meet the word penny stocks, I wonder what it is? Many people who are beginners to the stock trading world, would want to know about it too.

It is very important to first understand what penny stocks is.

Penny Stocks are common shares of small public companies with a “market cap” of less than 1 billion dollars and all stocks that trade outside of the major stock exchanges. [A market cap is a measure of the company’s total market value.

It is measured by multiplying the stock’s price by the total number of stock shares currently out in the market.] Penny stocks trade primarily over-the-counter via the OTCBB and Pink Sheets quotation system.

Penny Stocks have low market cap because of the low PPS or low price per share. Since the companies traded here have small market capitalization, Penny Stocks are called “Small-Caps”. The prices of small-cap stocks may vary depending on the companies’ outstanding shares. However, many of these have prices in pennies only, not even reaching a dollar, hence the name “Penny Stocks”.

Most financial advisors and long-term investors tend to avoid Penny Stocks completely because of the extremely high risk that comes with owning them. They generally tend to fluctuate wildly in price, and although some report spectacular gains in a matter of a few days or even hours, those who invest in them are generally surprised when they disappear altogether.

Source: About, Hot Penny Stocks Finder, Wiki