Penny Stock

Penny stock is a unique form of common stock traded mainly on the US market. It gets its name because Penny stocks trade for below five dollars (mere pennies) and are traded directly between two parties over the counter, like receiving you penny change at the store. It is quite a gray area in regards to investment and due to the nature of the internet it can be very hard to find legitimate information about penny stock because the sheer amount of fraud tends to bury everything else. That being said it is still legal and safe to trade in penny stock through the correct avenues.

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.