What is the difference betwen a "penny stock" and a very low priced stock on a legitimate exchange?

Question

Is there a difference between penny stocks that are sold over the counter and very inexpensive stocks on NASDAQ. For example, NASDAQ had a few drug companies today (that I have never heard of) selling for between 7 and 55 cents. My instincts tell me that if a stock is so cheap, there is a reason, and it is more likely to go to zero than anywhere else, but it seems like there is a lot of upside as well. I am not looking to invest my retirement, we are more or less investing small amounts of money for entertainment, and while buying a share of apple may give a moderate return in the long run, that is not what we are looking for with this money. On the other hand, we dont want to through money away, and there seems to be a lot of stocks (such as airlines) that are trading for a dollar or two that might be a fun investment. Any advice?

Answer 1

By industry definition a penny stock is considered any stock that sell for less than $5 a share.

As long as a penny stock firm is reporting the earning in a timely manner and filing all the required reports to the SEC, the may remain listed on NASDAQ, once the fail to do the required filing usually their listing is dropped,

The market is always right, so when a stock sells below $5 there are a few good reason for it,, 1-the stock is just being hit with sellers or 2-the stock is not worth any more, and usually this is the reason the majority of them are selling so low.

They say when you buy securities you have a 50%-50% chance of making money, when you buy penny stocks you have a 50-50-90% chance, 50-50 chance of making money and a 90% chance of loosing money.

When buying penny stocks, like any other security investment, you never invest 100% of you investing capital. Penny stocks are fun to trade, but you should never count on them to be considered part of your primary investment objectives.

Good luck, invest well

Answer 2

there are different definitions for what exactly a penny stock is.  Similary, there are different definitions for Thinly Traded Stocks, and for Small Cap or MicroCap.

The three defnitions of pennny stock that i've heard were 1) a stock trading at lesss than one dollar, 2)a stock trading at less than $5, and those trading at less than $4 per share.

The SEC uses the $5 defniition.

Answer 3

legit = nyse

penny stock = nasdaq, amex

the nyse has the most stringent listing requirements anywhere in the world.  if it's cheap on the big board, either it will be removed pretty soon (few days) or it's a legit company.

Answer 4

Penny stocks are unlisted, therefore, not within your ability to find out the true key facts about the company. IE their financial condition or even if they are truly a legitimate business at all.  

On the other hand, stocks in the same price range that are listed are automatically in danger of losing their listing because of their financial condition.

This doesn't mean all penny stocks are bad, it just means there is a reason that they are not listed.