Penny stock is shares that sell at or below the $1.00 price point, and which are considered highly speculative. These shares are usually issued by firms that have few assets or minimal operations, or which have only been in business for a short period of time. These shares may also be associated with firms that were originally more robust, but which have fallen on hard times. Penny stock is only sold on the over-the-counter market or the Pink Sheets in the United States, since their price points are too low to qualify them for trading on a formal exchange.
The trading volume of penny stocks can be quite low, making it easier for someone to manipulate the stock price by buying and selling shares in relatively small quantities. Consequently, penny stock is much more likely to be subject to scams than higher-priced stocks with larger trading volumes.
Investments in penny stock are generally not advised, due to their risky nature. An investor with deep resources and a high tolerance for risk may be better able to withstand the wild price swings associated with this type of investment.