Penny Stock Law and Legal Definition

Penny stock is stock whose definition varies according to the entity defining such stock, but is often characterized by trading below a certain defined price per share. For example, the SEC calls all stocks that trade for less than $5.00 per share a penny stock. In some cases, penny stocks are defined by the market they are traded on. For example, some traders consider stocks that trade on the OTC BB, the OTC, the 'Pink Sheets,' or the CDNX, to be penny stocks. In some cases, organizations or individuals will treat any company beneath a certain market cap (for example, $10 million) as a penny stock. Alternatively, the definition may be based on a combination of the above factors.

Penny stocks are considered high-risk, high-reward investments. Stocks that trade so low are often at risk of bankruptcy or losing its listing with an exchange.