What is a Penny Stock?
Penny stocks used to be known as any stock that traded for less than a dollar per share, hence the name penny. Over time this has changed, so now Penny stocks are typically stocks that trade for less than $5 per share. - Maybe we can thank inflation?
Most penny stocks don’t trade on major stock exchanges. Why? Well, penny stocks are typically stocks that are issued by small and often newer companies that have very low liquidity (cash) and are therefore high risk. This makes them speculative shares, meaning there is a high risk of losing your investment.
When a company is small, they are known as a micro-cap stock, this means their market capitalisation (company valuation) is small. It also means that they typically have fewer regulatory standards and limited listing requirements.
When micro-cap stocks list their IPO (initial public offering), which is where the company goes from private to public, they typically have to list on a smaller stock exchange that also has fewer listing requirements.
Side note: when you list a company on a stock exchange you have to meet the listing requirements, these differ depending on the stock exchange but as a general rule, the company has to meet certain minimum requirements on revenue, profit, company valuation, financial projections, number of shares to be released to the public, future vision of the company - just to name a few.
Often, penny stocks do not trade on a stock exchange but via the Over-The-Counter Bulletin Board (OTCBB) or via pink sheets.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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