Penny StockFinancial Dictionary -> Investing -> Penny Stock
Penny stock is somewhat considered the ugly step sister of the stock exchange, usually trading outside of the NYSE, NASDAQ, and AMEX major exchanges. They are, as noted low priced and they are usually connected to very small companies. Despite penny stock having small connotations, share volumes can still be in the hundreds of millions on a daily basis.
Penny stock often gets its bad name because naive beginners to investment are lured to its low prices and potential of high returns, only to come away with nothing. Because they have the potential for high returns they also have the potential for high losses and most penny stocks lose all value in the end, so it is important to invest early. The market is very volatile and fluctuates dramatically.
As alluded to a lot of penny stock fraud is started on the internet through networks of websites, press release systems, newsletters and message board posts, where the stock is touted as the next best thing. Thus the value is manipulated and as the masses push up the value, the fraudsters sell their shares and high tail it, whilst everyone else sees big losses. This is known as pump and dump.