Penny stocks, additionally called micro-cap stocks, nano-cap stocks, little cap stocks, or unlisted stocks, square measure common stock of little public corporations that originally trade at low costs per share. it's additionally a term for cheap stocks that afterward become extremely moneymaking holdings.
According to the U.S. Securities and Exchange Commission (SEC) the term "penny stock" usually refers to a security issued by an awfully little company that trades at but $5 per share ab initio. Penny stocks usually square measure quoted over-the-counter, thus the name "OTC stocks". Over-the-counter exchanges that list penny stocks embrace, the unlisted Bulletin Board (which could be a facility of FINRA) or unlisted Link LLC (which is closely-held by unlisted Markets cluster, Inc., at one time called Pink unlisted Markets Iraqi National Congress.). Penny stocks may trade on securities exchanges, as well as foreign securities exchanges. Penny stocks will embrace the securities of bound non-public corporations with no active commercialism market.
Prosecutors and also the Federal Bureau of Investigation say that fraud is widespread within the over the counter stock market. Even though the over the counter stock corporations square measure little, the scams that involve them are for tens of countless bucks.
In the case of the many penny stocks, low value inevitably ends up in low market capitalization. Such stocks are extremely volatile and subject to manipulation by stock promoters and pump and dump schemes. Such stocks gift a high risk for investors, UN agency square measure typically lured by the hope of enormous and fast profits. Penny stocks within the North American nation square measure typically listed over-the-counter on the unlisted Bulletin Board or Pink Sheets.
Another drawback with the over the counter stock market is that it's very little liquidity, therefore holders of shares in over the counter stock corporations typically notice it tough for them to live of positions.
In u. s., the SEC and also the money trade administrative unit (FINRA) have specific rules to outline and regulate the sale of penny stocks.