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Penny Stocks

Penny stocks are low-priced stocks, typically trading for less than $5 per share, and often represent small, emerging companies with low market capitalizations. They are usually traded on over-the-counter (OTC) markets rather than major stock exchanges. Penny stocks are highly speculative and volatile, making them attractive to risk-tolerant investors seeking potentially high returns. However, they carry significant risks, including low liquidity and a higher likelihood of fraud or business failure.

Example

An investor buys 1,000 shares of a biotech penny stock at $0.75 per share, hoping that a successful product launch will increase the stock’s price.

Key points

• Low-priced stocks, usually under $5 per share, traded outside major exchanges.

• Represent small-cap companies with high volatility and risk.

• Can offer high potential returns but carry risks like low liquidity and fraud.

Quick Answers to Curious Questions

They are highly volatile, often illiquid, and may be subject to fraud, making them riskier than more established stocks.

Investors can conduct thorough research, use limit orders, and focus on companies with solid fundamentals to reduce risks.

The potential for high returns if the company succeeds or if the stock’s price significantly appreciates attracts risk-tolerant investors.

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