Penny stocks are shares of small companies that typically trade below $5 per share. These stocks are often traded on over-the-counter (OTC) markets rather than major exchanges and are characterized by high volatility, low liquidity, and limited public information.
Penny stocks can offer the potential for massive returns — a stock priced at $0.50 that rises to $1.00 represents a 100% gain. However, they carry extreme risk. Many penny stock companies are unproven, poorly managed, or even fraudulent.
Penny stocks are also susceptible to manipulation through pump-and-dump schemes. Investors should exercise extreme caution, conduct thorough research, and never invest more than they can afford to lose. These stocks are best suited for experienced traders who understand the risks involved.