What Are Penny Stocks

What are Penny Stocks?

Penny Stocks are types of stocks available for trade, exchange, and purchase within the realm of the investment market that have been attributed with Market Capitalization value that does not exceed $50 million; Penny Stocks, which are oftentimes referred to as ‘Microcaps – a colloquialism with regard to the word ‘Capitalization’ – are typically bought, sold, and exchanged in larger quantities.

Penny Stocks vs. Blue Chip Stocks

While Penny Stocks are traditionally considered to be stocks with Market Capitalization values not exceeding $50 million, stocks exceeding this Market Capitalization value – and oftentimes far surpassing it – are considered to be ‘Blue Chip’ stocks; in contrast to Penny Stocks, Blue Chip stocks can vary in Market Capitalization values ranging from $50 million to upwards of $400 million.

Blue Chip stocks derive their title from the moniker granted to the chips used in games of Poker – in the game of Poker, then ‘Blue Chips’ are classified as the most valuable chip on the Poker table:

The purchase and Exchange of Penny Stocks is typically undertaken by individuals who are either beginning a foray into the investment market or seasoned traders who have come to be well-versed in the trends and behaviors latent within Penny Stocks

While Blue Chip stocks are typically difficult to attain with regard to individuals with lower amounts of investment capital, the price range implicit within Penny Stocks allows them to be more widely-accessible to individuals without vast amounts of disposable income

Penny Stocks are considered to retain a higher risk in return than their Blue Chip counterparts; while Blue Chip stocks rarely experience drastic losses or gains severe in nature, the availability of Penny Stocks allows for their development to be far more spontaneous

The amount of surety innate in both Penny Stocks, as well as Blue Chip stocks varies; the elevated pricing of Clue Chip stocks allows them to retain far more stable valuation within the commercial market – in contrast, Penny Stocks are considered to retain an increased risk due to the prospect of immediate growth or loss

What are Micro Penny Stocks?

Micro Penny Stocks are types of stocks whose purchase prices are typically lower than their Penny Stock counterparts; while traditional Penny Stocks will range in purchase price – rarely falling below a $5-per-share price range – Micro Penny Stocks are known for their standard purchase price not exceeding $5-per-share. Akin to traditional Penny Stocks, there exists an innate risk with regard to the purchase of Micro Penny Stocks:

Due to the decreased purchase price innate within Micro Penny Stocks, the probability for Microcap Fraud to take place is increased; the mass purchase of Micro Penny Stocks may allow for the purchaser to singlehandedly mandate the behavior and trends associated with that particular Micro Penny Stock

While the decreased purchase price is an attractive prospect to many purchasers, Micro Penny Stocks are considered to be risky with regard to immediate gain; while there do exist instances where Micro Penny Stocks have become Blue Chip stocks, many Micro Penny Stocks lack the liquidity to provide for – at least – an upfront financial asset

NEXT: Resistance