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Check Out this List of Penny Stocks that have had the Largest Trading Volume during the Most Recent Trading Day. View the biggest penny stock movers with MarketBeat.
What is a Penny Stock?So, what is a penny stock? The definition has changed over the years. Originally a penny stock was a stock trading for less than $1. Some investors still believe that a stock is only a penny stock if it trades for $1 or less, but you have more choices today regarding securities considered penny stocks. The Securities and Exchange Commission (SEC) defines a penny stock as one that trades for less than $5 per share. While you can find many penny stock listings on major U.S. exchanges such as the NYSE or Nasdaq, other penny stocks don't qualify for those exchanges and are listed over the counter (OTC). You can find those OTC penny stock listings at OTC Markets or on the Pink Open Market, dubbed the Pink Sheets. That nickname originated because quotes for penny stocks were once printed on pink paper. Pink sheet companies are typically more speculative due to low liquidity and reduced regulatory oversight. Stocks listed on the OTC Markets aren't necessarily penny stocks; many large companies, such as Swiss pharmaceutical firm Roche Holding AG (OTCMKTS: RHHBY) are listed over the counter. But you'll also find many low-priced stocks among the OTC listings and invest penny stock options.Why Do Investors Buy Penny Stocks?Are penny stocks worth it? However you define penny stocks, it's not tough to see why they are attractive. Penny stocks offer the potential for a high return with a relatively minimal investment. For example, say you find a stock priced at 50 cents. If you wanted to make a 50% profit, you'd only need the stock's price to reach 75 cents. In addition, you may love the idea that penny stocks' low cost of entry allows you to buy a large number of shares, further increasing their potential reward. Many people who dabble in penny stocks are speculators, even gamblers. They are attracted to the potential reward of these stocks, driven by technical signals more than fundamental analysis.What Are the Risks of Investing in Penny Stocks?All stocks have risks, but penny stock companies have more inherent risk factors. Otherwise, they would draw the attention of institutional investors. But why are they so risky? First, penny stocks are usually highly leveraged and in some cases, may even be in bankruptcy. In addition, they generally have a very small market capitalization, meaning their outstanding shares' value is low. These companies can offer the potential for sensational growth and increase investor risk. A small market cap means a lack of liquidity. Penny stocks are often more difficult to sell quickly, as fewer interested investors are on the other side of the trade. Institutional-quality stocks generally have some positive aspects when it comes to their fundamentals. Many have growing revenue and earnings, or at least the potential for growth in the foreseeable future. They also have viable products and services in the marketplace, ready to launch. Penny stocks, in contrast, often fall short on those points. It's not unusual to see unprofitable penny-stock companies, and many have little or no revenue. They may not yet have a product or service available for purchase or haven't yet gotten any customers. Good examples of this are biotech companies. These companies may be working on potential breakthrough drugs and therapeutics. However, these companies are subject to strict regulations and must go through a series of clinical trials before turning a profit or even beginning to deliver revenue. For instance, penny stock Curative Biotechnology (OTCMKTS: CUBT) had no revenue or earnings several quarters after going public. The company was established to develop treatments for rare diseases but had yet to bring any products to market. The stock's market capitalization was only $100,000, and it had just 2.3 million shares in float. Both those factors add risk for an investor. While many penny-stock companies are legitimate business endeavors, there's also the risk of fraud in penny-stock investing. Sometimes investors learn about a company from a newsletter that promises meteoric gains. These newsletters can appear very credible. However, if you read the disclaimers, you'll find that in many cases, the company paid the newsletter editor for an endorsement. This should be a gigantic red flag for you because if a company was a legitimately good investment, it wouldn't need to pay to get an endorsement. Here are some of the risks you may encounter with penny stocks.