Penny stock definition

A penny stock is a share in a small company that trades at a very low price, often below USD 1 and, under some definitions, below USD 5. The low price and small company size are what define it, not any single fixed cut-off.

Penny stocks usually come from small or early-stage companies and often trade off the main exchanges, on over-the-counter markets where listing and disclosure standards are lighter. They tend to have small market capitalisations, thin trading volume, and wide gaps between the bid and the ask, so prices can move sharply on small orders and positions can be hard to exit.

A penny stock sits at the opposite end of the scale from a blue chip stock. A blue chip is a large, established, widely traded company with a long earnings record, while a penny stock is small, lightly traded, and far more speculative. The trade-off is stark: penny stocks offer the chance of large percentage gains alongside a high risk of steep, fast losses.