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Penny Stock

In United State financial markets, the term penny stock means to a low priced, speculative security of a very small company.  Regardless of the company’s market capitalization or whether it trades on a securitized exchange like NYSE or NASDAQ.  Penny stock status normally determined by share price, not market capitalization. 

In UK markets, penny stock generally refer to stocks and shares in small cap companies.  Penny stocks are covered by a standard regulatory risk caution issued by the Financial Services Authority (FSA).  In France, penny stocks normally refer to chancy stocks with a price of less that one Euro.

Penny stocks usually have a market cap under $500 million dollars and think of extremely speculative, especially companies that trade on low volumes over the counter.

Since penny stocks have a smaller amount of shareholders, it is less liquid, which mean it will not trade as many shares a day as a bigger company.  Lack of liquidity can make penny stock a lot more exposed to exploitation by management, market makers, or third parties.

There are many risk investors take with penny stocks.  Many investors are attracted to penny stocks due to the low price and the chance for rapid growth that can be as high as several 100% in just a few days.  In the same way, huge loss can occur and many penny stocks.

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