Penny stocks are shares of small public companies that trade at a low price, typically under $5 per share, according to the U.S. Securities and Exchange Commission (SEC) definition

. These stocks often trade over-the-counter (OTC) rather than on major stock exchanges like the NYSE or NASDAQ

. Key characteristics of penny stocks include:

• Low price per share: Usually less than $5, sometimes even just a few cents

• Small market capitalization: Often issued by companies with market caps under $300 million

• High volatility and low liquidity: Prices can fluctuate sharply, and shares may be difficult to buy or sell quickly

• Higher risk: Due to limited financial history, speculative nature, and less regulation, penny stocks carry a greater risk of loss

• Potential for high returns: Their low price and small size mean they can sometimes experience rapid growth if the company succeeds

Penny stocks are often favored by speculative investors willing to accept high risk for the possibility of substantial gains, but they are also considered risky and sometimes likened to gambling

. In summary, penny stocks are low-priced shares of small companies, traded mostly outside major exchanges, with potential for high reward but significant risk