What are Penny Stock?

In the Penny Stock Reform Act of 1990, it was defined as “any stock which is not selling on a major exchange and has a purchase price of less than $5 per share.”  Most post-reverse merger stocks are initially penny stocks when they begin trading.  Penny stock market  refers to the trading activity in lower-priced stocks on the Over-the-Counter Bulletin Board or Pink Sheets.

Pink Sheets: A centralized quotation service that collects and publishes market maker quotes for Over-the-Counter securities. Unlike the OTCBB, issuers do not have to be fully reporting companies with the SEC for their shares to be quoted on the Pink Sheets.

Penny Stock cpmpanies often will not have a successful product to market.  They are primarily in the development stage of the production.  They are attractive to private investors who do not have enough capital to purchase more expensive shares.

 Many new investors are lured to the appeal of a penny stock due to the low price and potential for rapid growth which may be as high as several hundred percent in a few days. Similarly, severe loss can occur and many penny stocks lose all of their value in the long term. Accordingly, the SEC warns that penny stocks are high risk investments and new investors should be aware of the risks involved. These risks include limited liquidity, lack of financial reporting, and fraud