Penny stock
A penny stock is a that trades at a very low price, generally under five dollars a share, the threshold itself uses when applying special rules meant to protect investors in this part of the market. Penny stocks are usually issued by small, often unprofitable companies with tiny market capitalizations.
Because penny stocks are frequently thinly traded, even a small order can move the price significantly, and tend to be wide relative to the share price. Many trade over the counter or on the rather than on a major exchange, meaning they also come with lighter disclosure requirements and less regulatory scrutiny than exchange-listed .
These characteristics make penny stocks a common target for pump-and-dump schemes, where promoters hype a thinly traded to attract buyers, then sell into the resulting demand at the inflated price, leaving later buyers holding shares that quickly collapse in value. Penny stocks are generally considered highly speculative and are best approached, if at all, only with money an investor can afford to lose entirely.