Penny Stocks & Why They Bite

Penny stocks look cheap and exciting, but they come with thin trading, little information and a long history of fraud. Here is what they are and the red flags to watch for.

What counts as a penny stock

The SEC generally uses “penny stock” for shares of small companies trading below $5 a share. Many trade over the counter rather than on a major exchange like the NYSE or Nasdaq, where listing standards and disclosure requirements are stricter. Some penny stocks trade for fractions of a cent.

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