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Penny stocks can be used as a catch-all term for several types of speculative stock investments,

but most commonly, it refers to small public companies trading for less than $5 per share.

Penny stocks are typically not listed on U.S. stock exchanges like the NYSE or NASDAQ.

Instead, they're traded through a different method called over-the-counter, which is why

they're also called OTC stocks.

Note that not all OTC stocks are under $5 per share, but we'll discuss technical definitions

later.

Some traders are drawn to penny stocks because their low price means they can buy a lot of

shares and profit from small changes in the stock price.

However, high volatility and frequent fraud can make investing in penny stocks and similar

speculative securities very risky.

Understanding some key definitions as well as the unique risks that come with trading

these speculative securities can help you make more informed investing decisions.

When trading penny stocks and other speculative securities, it's important to understand

some technical terms.

Penny stocks is often used interchangeably with microcaps, OTC stocks, pink sheets, and

gray sheets, but the securities industry uses each term in distinct ways.

A microcap stock is generally considered any stock with a market cap of $50 million to

$300 million.

However, not all microcaps are penny stocks.

OTC, or over-the-counter, stocks include all stocks that are not traded on a U.S. stock


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