What it is
A penny stock is a common share of a small public company that trades at a low price, usually below $5 per share, and is often traded over-the-counter rather than on major exchanges. These companies typically have small market capitalizations and limited financial resources. Penny stocks are highly speculative and volatile, often lacking liquidity and transparency, making them prone to significant price swings.
Penny stocks are known for their extreme volatility and susceptibility to pump-and-dump schemes, where promoters artificially inflate prices before selling their shares. They are not typically followed by institutional investors or major analysts. Retail investors might be drawn to penny stocks by the allure of rapid, substantial gains, but they face significant risks including illiquidity, lack of reliable information, and the potential for total loss of investment.
Why it matters
Penny stocks offer the potential for huge returns but come with extremely high risk, including illiquidity and susceptibility to manipulation. Exercise extreme caution.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice