Penny Stocks

Penny stocks are low-priced, speculative stocks that are very volatile. They are the lowest in price. Many stock exchanges do not trade them.

How to identify them

Penny stocks (also called designated securities) have the following specific qualities:

They sell for less than $5. They are sold over-the-counter (but not on the NASDAQ). Their companies have $2 million or less in net tangible assets.

Where to find them

They are listed on the Pink Sheets, which lists them daily. Before a broker-dealer may buy and sell penny stocks for a non-established customer, he or she must document the customer’s suitability and get a written agreement for the first three purchases.

Penny stocks are the lowest in price.

Why investors like them

The appeal of penny stocks comes from their low prices. Though the odds are against it, if the company that issued them suddenly finds itself on a growth track, their share price can rise rapidly. These stocks are popular among speculators.