What are Penny Stocks, really?
Penny Stocks Definition
According to the SEC definition, every stock below $5 is considered to be a penny stock, however there is much more to that.
For a lot of people, Penny Stocks are OTC stocks priced below $0.01 (I do not trade those).
First, you will find that penny stocks can also be higher priced – up to $15-$20; and if we look at any current runners, the price may go to $40 or higher (check BLNK in April 2016 or July 2017 vs. current price!). This doesn't change a definition, only requires a little flexibility and an open mind.
Second, penny stocks will have Small Market Cap and Small Float. What do we mean by that? Small market cap is usually set to <$300mln and small float to < 100mln shares. Market cap is current market value of the company = number of outstanding shares x price of a share. But again, it is only a guidance.
Third, in general, we are looking for volatile stocks that can move 20%-300% in a few minutes when volume comes.
We will discuss in detail what stocks to choose in our training.
My sweet and short definition of Penny Stocks is that they are stocks that can run big time (above 20% in few minutes)!
Where I can trade Penny Stocks?
Most of the penny stocks will be located on NASDAQ and OTC markets, but some NYSE stocks can also be considered penny stocks.
What is the difference between those exchanges?
On NYSE, in general, trade big companies with huge market cap and float, hence they are not volatile and will move only a few percent in a day.
On NASDAQ, you will find a lot of smaller companies, but only companies with share price of $1 or more can be listed there. If their price drops below $1, they have to move to OTC.
On OTC (over the counter) are listed thousands of small and tiny companies, and due to OTC regulations, they often provide very little information (hence are much less secure). There are no top price limits on OTC, so you will find there companies trading for $0.001, as well as trading for $20.
In our training section, we learn trading fast-moving strong penny stocks as they offer the best risk/reward ratio and good volatility