Investing in a stock market can be a very exciting event for most people.  The main reason for this stems from the fact that you are able to invest in a certain company’s future and that money is used and circulated in the national economy to create production and employment throughout the economy.  On the other hand, by investing in the stock market, you are guaranteed to have the best possible income returns compared to other modes of investments that you can do.

However, if you are investing in the stock exchange, it is important for you to be aware of special stocks called penny stocks.  Penny stocks are (by the definition of S E C – Securities and Exchange Trade Commission) stocks that have an individual value of less than $ 5.00 per share.   In addition, these types of stocks are not traded over the more traditional stock exchange markets such as the New York Stock Exchange (N Y S E) or N A S D A Q. In fact, these so called penny stocks are usually traded by the over the counter services.  These over the counter services include the OTCBB or also the Pink Sheets. 

In general US Financing markets, sometimes penny stocks are defined as any type of a stock that trades outside of major exchange channels like the New York Stock Exchange. In this sense of the definition, it is not the value of the stock that is definitive; but rather it is the way it is exchanged that makes it called a penny stock.  Alternatively as another definition, many brokers in the U S financial market define any stock that has a share value less than a 1 U S Dollar, to be considered as a penny stock or a penny share. 

In retrospective, it can be said that all types of companies which are traded in penny stock shares can be considered as micro cap or small cap companies. The majority of these stocks are less than a dollar and in fact the huge portions of penny stocks that are available are sold for less than 50 cents a share.   However, it is important to note that due to the nature of the penny stocks and also due to the fact that they are usually exchanged through pink sheets with over the counter quotations; these shares and their respective companies are not scrutinized by the Securities and Exchange Commission of the United States.  Hence, many of the penny stock companies do not meet the minimum requirements that are necessary for being enlisted in the New York Stock Exchange.  Thus, this usually means that the companies with penny stocks will have financial problems and investing in these stocks will be a major risk.

If you go to any decent investment professional, they will immediately tell you that investing in penny stocks is a major mistake and that you will lose your money as a result. Thus, you should stay away from penny stocks in your investments.