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The Truth About Penny Stocks: What Every Trader Needs to Know

When it comes to penny stocks, many traders have a common misconception that anything under $5 is considered a penny stock. However, the truth is that penny stocks can trade up to $20-$30 or more per share, and the value of the company and its revenue determine its classification.

Penny stocks are typically known as Bulletin Board, OTC (Over-The-Counter), and Pink Sheet stocks, depending on how the company went public. While some companies that trade under $5 on NASDAQ national and NYSE are not considered penny stocks, it's essential to understand the difference.

Although penny stocks offer an attractive low cost of entry, they also come with a high risk of volatility, including pump-and-dump schemes. Therefore, it's crucial to do thorough research and analysis before investing in any penny stock.

Most active day traders usually stick with NASDAQ national and NYSE stocks, which comply with the highest standards of compliance and report quarterly earnings. Smaller companies that are less well-funded often trade as penny stocks because they do not want to apply the exchanges with earnings and news.

In conclusion, our recommendation is to stay away from penny stocks if you're just starting in the stock market. While the low cost of entry may seem attractive, the risk of losing all your money is high. Trading is a marathon, not a sprint, and being a good trader is not about making a fast buck but having control. Stick with what you know, listen to the professionals, and make informed investment decisions based on thorough research and analysis.

Learn more about this topic and how to gain a greater understanding of the stock market at my free class, click here to sign up to attend.


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