By definition, a penny stock is any common stock that trades for less than five dollars per share of stock. Penny stocks, unlike other common stocks, are not normally traded on major stock exchanges like the NASDAQ and NYSE.
Instead, you can buy penny stocks over the counter through quotation services. Two of the more popular quotation services are the OTC Bulletin Board and the Pink Sheets.
Penny stocks are considered to be risky investments by many investors. This is mainly from the lack of information readily available about penny stock companies. Because these stocks are not traded on any of the major stock exchanges, the reporting requirements are quite relaxed.
This means that the pink sheets penny stock companies are not required to report as much information about the company as stocks that are traded on the major exchanges. For example, it is not required that a penny stock company notify the quotation service it is listed through of any ownership changes or accounting procedures.
Most of the people who are attracted to penny stock investing are new to the world of investing, and reluctant to risk losing large sums of money in the major stock exchanges. For these people, penny stocks are a good alternative.
Although they are considered a risky investment, only small sums of money are involved. This helps to minimize any losses that a new investor may experience. At the same time, it allows someone new to the world of investing to learn the basics and give investing a try.
Many people are attracted to penny stocks because they believe that they will find the next big thing and become rich. Although this does occasionally happen, most penny stocks do not gain wealth over time.
In fact, many companies represented by this type of stock actually lose money. Therefore, it is important that a person understands that these investments are not get rich quick vehicles and instead should be a small part of a your overall investment portfolio.