A penny stock is a common stock trading at five (5) dollars or less. Penny stocks are traded outside the major markets (NYSE, AMEX, or NASDAQ). Instead, they are traded “over the counter” (OTC) via quotation services such as the OTC Bulletin Board and the “Pink Sheets.”
Penny stocks are sold at such low prices that they entice many investors, particularly first-time investors. These low prices allow novices to explore the markets, without risking an extensive amount of money. Furthermore, if the stock were to dip in price, the investor will not have lost excessive amounts of money.
Another advantage to penny stocks is that they are easy to buy. Penny stocks are sold as common shares, and are readily available to the public. Furthermore, penny stocks are listed in each of the stock exchange markets for the benefit of the general public and potential investors.
The biggest advantage is the potential for very high returns on investment. It is not uncommon for some penny stocks to double or triple in price in extremely short periods of time; something that is nearly impossible for the average stock.