What are penny stocks in the US stock market?

The concept of penny stocks is doing investments with just $5 or less, it is quite a staggering concept, and surprisingly it is also something that most people are not familiar with. It is a concept that differs from country to country for instance; in the US stocks traded under $5 are called penny stocks, whereas in UK these stocks are below £1.

U.S. SEC definition of penny stocks:

The US Security and Exchange Commission (SEC) has defined penny stocks in a very specific manner; it is issued by small public companies that trade at less than $5 per share. Penny stocks are priced over-the-counter (OTC) rather than on the trading floor. It is a highly illiquid and extremely volatile form of investment.

Gains Of Penny Stocks:

It is not a secret that during this epidemic a lot of people have gone through major financial problems and everyone is looking for a way to save money or to invest in a secure way. And since penny stocks are made by really small investments people new to this phenomenon try to get in these trades. There are a lot of big companies now that started as penny stocks.

There are certain gains that can be attained via penny stocks:

• They provide a way to gain access to larger marketplace listing.
• Start-ups and growing businesses gain public funding.

• With a lower price, penny stocks allow for a significant upside in share appreciation.

Before getting into penny stocks be sure to read the guidelines at https://finance.zacks.com/analyze-penny-stocks-5706.html to be safe from fraud.

Risks Of Penny Stocks:

It is a no-brainer that doing investments without any research can be risky. These investments are only safe for people who have thorough knowledge of the concept of penny stocks. Otherwise people might end up facing either a minor loss or at worst even bankruptcy.

• Since most of the companies involved in penny stocks are relatively new or growing, they don’t have financial records, hence investing in them might be risky and they may turn out to be a fraud.

• The liquidity of these trades is really low. Stock holders may not be able to sell the stocks at the right time.
• Growing companies are mostly subject to a less strict criteria and scrutiny than companies with shares on major exchanges.

So, Where Should You Invest?

One thing is for certain this penny stock is NOT one smooth sail. Just because it requires a small investment does not necessarily mean it’s a safe decision to make.

To see the top 7 companies in the US where penny stocks can be a viable option click here.

Conclusion:

In a nutshell, you probably need to do a lot of research before stepping into the world of penny stock. These stocks, perhaps even as little as $5, can have a great impact, these small investments can turn into a lump sum amount or astonishingly enough make you go bankrupt.