What Is A Penny Stock And Where They Get Traded?

Many investors call a stock trading for less than $5 per share as a penny stock. While other investors think that any stock trading for one cent is a penny stock. Both these definiations are correct. But a more accurate definition of a penny stock is stocks that trade on OTCBB- Over The Counter Bulletin Board.

You can define a penny stock in different ways. But the best definition of a penny stock is those stocks that get traded on the OTCBB and Pink Sheets.

This definition eliminates all those stocks that get traded on New York Stock Exchange or NASDAQ Small Cap Market for let's say $0.5. Very few stocks on these major exchanges get traded for below $1 per share. This is a sign that the company whose stock once traded for way above this price is in trouble due to mismanagement or some other financial problem and is headed for a bankruptcy and will soon be delisted from these major exchanges.

Many investors specialize on investing in companies headed for bankruptcy. But it is always more profitable to invest in companies that are awaiting their future than companies that have no future and are fast headed to their decline and liquidation. Now many companies who now trade for more than $50 once traded for under $1 like Microsoft, MCI, Toys R Us and many others. SO you can well imagine the potential for penny stock investing.

So what is an Over The Counter Market? The Over the Counter Market or Over the Counter Bulletin Board (OTCBB) is a regulated quotation service that displays real time quotes, last sales price and volume information in stocks listed on it.

What types of stocks get traded on the Over the Counter Bulletin Boards (OTCBB)? Stocks that get traded on OTCBB might include national, regional, foreign equity issues plus warrants, units, ADRs (American Depository Receipts) and DPPs ( Direct Participation Programs).

Over the Counter Market (OTC) started in 1990 when the Penny Stock Reform Act of 1990 was passed. Penny Stock Reform Act of 1990 mandated Securities and Exchange Commission (SEC) to start an electronic system that would implement the rules of Section 17B of the Exchange Act. This OTC Market eventually became the Over the Counter Bulletin Board (OTCBB). As said earlier, it is easier for a company to get listed on OTCBB as compared to the regular exchanges like NYSE or NASDAQ. Many young companies start from OTCBB and eventually make it to NYSE or NASDAQ. If you invest in one such penny stock company, you can become rich in a few years time!


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Mr. Ahmad Hassam has done Masters from Harvard. If you can read an email, you can print cash with these Strignano's Forex Signals & learn how to trade like pros from Tom Strignano- an EX CHIEF BANK TRADER. One new member made $15,000 in just 24 hours! Get these 3 FREE great Stock Investing Reports & discover a Stock Trading Course that can make you rich in 2010.