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Apr 08, 2021 Penny stocks are shares of small companies that have market capacities of less than $300 million. For this reason, they are also called microcap stocks (if they have less than a $50 million market cap, they are called nano-cap stocks). Penny stocks can be listed on major exchanges—but they only trade on over-the-counter exchanges. Sep 13, 2019 Penny Stocks (PennyStocks.com) is the top online destination for all things Micro-Cap Stocks. On PennyStocks.com you will find a comprehensive list of Penny Stocks & discover the Best Penny Stocks to buy, top penny stock news, and micro-cap stock articles. 2021 is expected to be a huge year for penny stocks. Practice Makes Perfect. Leeds knows that 95% of penny stocks are poor investment choices.

New investors are often attracted to penny stocks due to the large opportunity for profits they seem to present. 'If the shares can just trade up from $0.10 to $0.20 each, I'd double my money' is a popular line of thinking.

But penny stocks are far more dangerous than buying large, well-established companies. The penny stock universe include shares of failed companies, occasional frauds, and schemes intended to transfer money from the greedy newbie to their motivated, if unsavory, operators.

For example, the actual Wolf of Wall Street case involved peddling penny stocks.

The history of penny stocks: Before electronic trading and discount brokerage firms, penny stocks got a bad rap for being prohibitively expensive. In the old days, you'd pay as much as a quarter-point ($0.25) to buy or sell a share of stock.

This was the brokerage firm's commission. And because it was set in stone -- it didn't matter whether a share traded for $1 or $100 -- the commission made up a much bigger portion of your investment in penny stocks than it did on pricier shares.

Many mutual funds enacted policies to avoid stocks which trade for less than $5 per share for reasons of expense (they pay commissions, too) or because of their speculative nature. And over time, it just so happened that the feeling became something of a self-fulfilling prophecy. People avoided penny stocks, and thus it became generally accepted that only the worst companies would let their shares trade at penny stock prices.

Penny stocks today: The widely accepted definition of penny stocks has been somewhat extended to cover other, higher-priced stocks which also trade in less-regulated, over-the-counter markets.

Over-the-counter stocks are generally less liquid, and they have fewer requirements to remain listed. Many don't even file financial reports on time, or at all. And they're often managed by people with a less-than-stellar pedigree.

Conflicts of interest are probably the most common issue. I've seen it all over the years -- from company-owned planes that are used more for the executives' pleasure than business, to companies that pay above-market rents because the CEO just so happens to also be the landlord.

That isn't to say that these bad behaviors are inherent in penny stocks, just that they're more common. One of the benefits of obscurity is that some managers can get away with a lot more without the benefit of prying eyes looking over their every financial filing.

Should you buy penny stocks? If I were to paint with broad strokes, I'd recommend avoiding them entirely. There are, however, legitimate companies that happen to have low share prices. AMD(AMD), a company which makes many of the chips in electronics ranging from laptops to phones, has long traded for prices in the penny stock range of less than $5.

Likewise, Roche Holding(RHHBY), a Swiss health care company many would recognize, has shares listed on the over-the-counter market to allow American investors to invest in it.

AMD and Roche are legitimate businesses. They file regular financial reports, adequately disclose their business lines to investors, and are clearly not illegitimate companies. They just happen to have a single trait of most penny stocks -- a low per-share price or an OTC listing.

Many penny stock and OTC-listed companies are nothing more than shells. They include the likes of marijuana companies, some of which exert more effort to market their stock than their products, and 'dark' companies that haven't filed financial statements in years.

A large number (by my count over 40%) of OTC stocks are considered 'grey market' stocks, which do not require any filings with the Securities and Exchange Commission. Can you imagine investing in a business, having no idea what it earns, or even what its business model entails? That's the case for nearly half of stocks that trade over the counter.

Though they may seem like an easy and simple way to quick profits, know that penny stocks are anything but. The 'easy' way to get rich in stocks is to buy good businesses and own them for a very, very long time -- years, if not decades.

Investors dominate the list of Forbes 400 billionaires, but I can assure you it wasn't penny stocks that created their wealth.

Jordan Wathen is a value investor who writes for The Motley Fool. The views expressed here are his own.

(New York) First published February 16, 2015: 11:42 AM ET

Penny Stocks: What Are They and How Do You Make Money with Them?

Day trading penny stocks has skyrocketed in popularity in recent years, due to the low barrier to entry and the ability to turn small sums into large gains. Savvy investors who have learned how to make money with penny stocks have the potential to make quick profits, but the vast majority of penny stock investors will lose their shirts.

So, can you make money on penny stocks?

The short answer is yes, but it’s important to remember that trading penny stocks isn’t like trading your average stock. To learn how to make money with penny stocks, you’ll want to understand all the ins and outs before you dive in.

Penny stocks are called by many names, such as microcaps, small caps, stocks under $5, and more. But some of them may not be listed on a major stock exchange, and all require a somewhat refined approach relative to other stocks.

Most stocks are listed on NASDAQ, the New York Stock Exchange, and other major markets. Penny stocks, on the other hand, are often traded on the OTC, or Over the Counter, markets. This doesn’t factor into the trade, however, and most online brokers support this market.

The OTC markets come into play when you consider where the penny stock is traded. The OTC Bulletin Board, an electronic trading service operated by the Financial Industry Regulatory Authority, requires all companies to meet the minimum standards of keeping up-to-date financial statements. Penny stocks listed on publications like the Pink Sheets may not have met these requirements, giving you less information to base your trading decisions on and carrying a greater risk.

4 Tiers of Penny Stocks

Tier 1 Penny Stocks: These are the stocks listed on major stock exchanges like NASDAQ and the New York Stock Exchange. They’re usually priced below $5 per share, although they can be a bit higher. They’re held to higher standards than OTC penny stocks because they have to provide financial information to the exchange, which means they’re less open to manipulation.
Tier 2 Penny Stocks: These are traditional penny stocks that are typically between one cent and 99 cents.
Tier 3 Penny Stocks: These are sub-penny stocks, which trade below one penny per share. Ultimately, these companies aren’t strong enough to have the stock priced at one penny per share. You’ll never find these stocks on the New York Stock Exchange or NASDAQ.
Tier 4 Penny Stocks: These are triple zero stocks

Pny Penny Stock Flip That Made Me Real Money