A penny stock can be risky.
A penny stock trades at a low price from a very small company. According to Investopedia, these stocks are considered high risk because of their highly speculative and liquid shares.
Function
Smaller companies have smaller operations and more risks compared to their large, publicly traded counterparts, according to Investopedia. These small companies' stocks trade at a fraction of the price, also known as penny stocks.
Definition
Penny stocks do not have a generally accepted definition, according to Investopedia. Some consider a penny stock to be any type of stock that trades for pennies or under five dollars. Others consider a penny stock as a form of stock trading off the major market. The Securities and Exchange Commission modified the definition for penny stocks to include shares that trade below five dollars.
Warnings
The Securities and Exchange Commission reveals that penny stocks can be risky. These are growing companies with limited resources and cash. Most penny stocks are considered high-risk investments with low trading volumes and are only given limited attention from investors. These stocks can be susceptible to market manipulation.
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