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What is a Penny Stock?

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What Is A Penny Stock

What is A Penny Stock, and Why You Should Care?

One of the first questions asked by many novice investors is “what is a penny stock?” The name certain sounds familiar enough, but many new investors have a hard time wrapping their heads around the concept. While the stocks are basically those that trade at lower value levels, there are at least a few major differences in the way that one invests in the stocks. To understand those differences, one must first start by understanding what the stocks are.

What is a Penny Stock, and Why Does it Matter?

Broadly speaking, a penny stock is any stock that trades for less than five dollars. The name comes from the older limits on the stock, at a point when these stocks were trading for under a dollar or for mere pennies. The term has stuck around in the modern marketplace for a number of reasons, not the least of which is the similarity of trading habits no matter what the stock value. What is a penny stock, after all, but an often-risky investment? Most of those who want to know the answer to the question of what is a penny stock will find that the truth lies more in the risk of trading than in the actually value of the stock itself.

A penny stock will always trade more quickly and often with more change in valuation than any other type of stock. The speed at which the market moves is often part of the risk factor, as one can easily find that a stock’s value can vanish in mere moment. If you want to know the answer to what is a penny stock, you should always start with a source of information that you can trust, after all, failure to do so will just change the definition to “a very bad investment”.

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