According to the Securities Exchange Commission (SEC), the penny stock definition is any security trading under $5.00 per share.
Most of these companies are relatively new, have a small market capitalization and haven’t established a track record as successful businesses which makes them speculative investments for traders and investors.
So, what are penny stocks? Well, for starters, they are cheap which means you don’t need a ton of capital to put on a large position and they regularly have huge runs over a 100% or more in just one day!
The allure of making these big returns has attracted all types of new traders and is why they have gained so much popularity.
However, it is just as easy to lose all your money, or even more if your trading on margin, due to the volatility involved with penny stocks.
That’s why it is important to understand how to trade them and what to look for before risking any of your hard-earned money!