Penny Stocks are low priced traded stocks. They are different from other category stocks in many contexts. The other category stocks being like small cap or blue chip stocks. The points of distinctions are as follows:
- Stock Price: The major difference between the penny and other category stocks is the market price. As name suggest, penny stocks are very low priced stocks, trading below $5 per share. These penny stocks companies are very small sized companies compared to other category companies.
- Risk: Penny Stocks are very risky trades for investors as compared to trading in other category stocks like small cap and blue chip stocks. Penny Stocks are low traded volume stocks with high price volatility. They even have a risk of being de listed from the exchange.
- Rules of SEC: Unlike blue chip and other big company stocks, most of the penny Stocks are not traded on any important exchange, rather on pink sheets. Being traded on pink sheets, they are out of the scope of rules of SEC.
- Market canalization: The penny stocks are small company stocks so as there market capitalization. These stocks don’t have huge capital floating on to the exchange for trading on exchange as that of big and big chip stocks.
- Scams: The penny stocks are always on radar of the fraudsters, so are more to scams and hence a trap for the small investors. These are easily prone to scams because they are outside the scope of SEC, with no strict rules and regulations and non-transparency.
- Information Available: Unlike blue chip and small cap stocks, the penny stocks are not popular stocks. The information regarding its financials, press releases are not easily assessable on TV news channels, internet and newspaper etc. Investors have to work hard to get news on penny stocks.