Business
What Are Penny Stocks?
Discover penny stocks, low-priced shares of small companies. Learn why they're trending and the high risks and potential rewards they offer investors.
What is it?
Penny stocks are shares of small public companies that trade for low prices, typically under $5 per share. Unlike major stocks listed on exchanges like the NYSE or NASDAQ, many penny stocks trade over-the-counter (OTC) through networks like the OTC Bulletin Board. These companies are often new, in developing industries, or facing financial difficulties. Due to their small size and less stringent reporting requirements, information about them can be scarce, making them speculative investments.
Why is it trending?
The allure of penny stocks lies in their potential for massive returns. Because the share price is so low, even a small increase in value can result in a significant percentage gain for investors. This potential for exponential growth attracts traders looking for high-reward opportunities. In recent years, social media platforms and online forums have fueled their popularity, creating communities that can rapidly drive up the price of a particular stock through coordinated buying, often referred to as a "short squeeze" or speculative frenzy.
How does it affect people?
Investing in penny stocks is a high-risk endeavor. While the potential for profit is high, so is the risk of losing one's entire investment. These stocks are highly volatile and often illiquid, meaning it can be difficult to sell shares when you want to. They are also susceptible to "pump and dump" schemes, where fraudsters artificially inflate a stock's price to sell their own shares at a profit, leaving other investors with worthless stock. For individuals, this means penny stocks can be a path to quick wealth or, more commonly, significant financial loss.