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Many people are confused by the exact meaning of penny stocks, particularly in a modern world, where they may cost significantly more than a penny/cent per unit. Also you’ll find that individual definitions vary, from broker to broker and among different investors.

Here’s a quick, easy burst of information, to help you start to get to grips with penny stocks. Hopefully this will give you some pointers for further exploration and research, rather than a definitive understanding.
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A Definition For Penny Shares

Penny shares are the well-known title, for what’s more officially referred to as a micro cap equity. In its easiest terms, it’s an inexpensive stock, a share which trades at a lower worth than blue chip, high cap items.

In the United States the SEC outline a micro cap equity as a share which trades at a unit value of less than $5.00. That is an official definition, but there are other, looser definitions, that are used by buyers and penny stock brokers, depending on their place within the penny stock market.

If you are speaking to a broker or investor about penny shares, they could be speaking about shares where the value, per unit, is lower than a fraction of a cent. You might also be taking a look at stocks that are traded on more obscure markets, with caps of $25-$50 million, or less, depending on the definition applied.

In fact, you don’t need to be within the US, to be talking about penny shares, as they’ve parallels, all around the globe, where low cost stocks and shares function, in markets that help their trade. Top penny stocks can go on to be big name, blue chip shares, as an organization grows and the markets they trade on can change, over time.
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Because the definitions used are fairly flexible, in many instances you will typically discover that there are some contradictions to be found, in the way that these shares are defined. For example, you can have shares that trade in obscure markets, with high unit costs. Similarly you might discover corporations with high market caps, trading at costs well below $5.00 per share.

What Markets Trade Penny Stocks?

Penny stocks can be traded on a wide variety of markets. In the United States, this will imply anything from the NYSE and NASDAQ to the OTC-BB and Pink Sheets. Penny Shares are more likely to be discovered on the OTC-BB and Pink Sheets, because the bigger exchanges are likely to focus on increased market cap companies.

Small cap shares tend to be found where the regulations and fees for exchange listing are lower. The Pink Sheets have fewer restrictions than the OTC-BB, so you’ll find them in greatest numbers there. You’ll find that some brokers favor to not deal with the Pink Sheets, however you’ll discover plenty of OTC-BB Brokers, with a complete checklist of OTC shares available.
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I hope this has helped you to understand penny stocks a little more and whether you should invest in them. They are not for all investors but for a certain type of trader they can be perfect.