A penny stock is a very cheap share — usually under $5 — in a small, unproven company. Its low price and thin trading make it wildly volatile, illiquid, and a magnet for pump-and-dump scams.
A penny stock is a stock that trades at a very low price — the SEC generally uses under $5, and many trade for literal pennies. They belong to small companies with tiny market caps, frequently quoted off the major exchanges. The cheap sticker price tempts beginners, but it usually signals a struggling or unproven business.
Penny stocks trade thinly, so a single order can swing the price violently and you may not find a buyer when you want out. Many have weak finances and little public information. Worst of all, they are the classic vehicle for pump-and-dump fraud.
A low price is not the same as good value — see market cap for why share price alone is misleading. For most people, established stocks, ETFs and index funds offer far better odds than chasing pennies.
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Not advice: educational content only. For authoritative basics see the SEC at investor.gov.
Related: what is a blue-chip stock, what is market cap, and common investing mistakes.
A penny stock is a very low-priced share, usually trading under $5 and often for pennies, in a small or unproven company. The low price and tiny size make these stocks extremely volatile and risky.
They trade thinly, so prices swing wildly and you may struggle to sell. Many are little-known companies with shaky finances, and they are a favorite target of pump-and-dump scams.
A pump-and-dump is a scheme where promoters hype a cheap stock to drive the price up (the pump), then sell their shares into the buying frenzy (the dump), leaving latecomers with big losses.
A few do, but the odds are poor and the losses can be total. Their cheap price is not a bargain — it usually reflects real weakness. Most investors are better served by established stocks and funds.