| Penny stock is also known as micro cap equity in the | | | | investment. |
| United States of America. There is no clear or | | | | On the other hand, the more old-fashioned investors |
| generally accepted definition for the this term. Some | | | | stay out from investing in micro cap equities because |
| defines them as a share in a company which trades | | | | of several reasons. One of these reasons is that the |
| for less than $5 or those which trades for pennies, | | | | fundamental companies are often not secure. |
| while others define them as a company trading off | | | | Second, many shares are too unstable in terms of |
| on major market exchanges such as American Stock | | | | price and on percentage basis. Lastly, these |
| Exchange. They are usually traded on more obscure | | | | companies don't pay dividends. |
| market such as the Pink Sheets. These definitions | | | | Investing in penny stocks. These are by nature highly |
| often cause contradictions. For example, there are | | | | speculative. Investors of these stocks have to trade |
| very large companies, based on market | | | | quickly. Investors have to be updated with what is |
| capitalizations, that trade their stocks below $5 and | | | | going on with the stocks as these can make or lose |
| there are also very small companies that trade their | | | | money in a span of hours or even minutes. An |
| stocks above $5 per share. Furthermore, there are | | | | investor should be quick in deciding what to do with |
| also very large companies trading in pink sheets | | | | them, whether to sell or keep it to avoid losing large |
| which trade their stocks for more than $5 per share. | | | | amount of investment. |
| Advantages and disadvantages. Traders who are | | | | If one is planning to investing them, a review on |
| speculative are engrossed in investing to micro cap | | | | popular stock message boards and various stocks |
| equities because of several advantages. Amongst | | | | related newsletters will be helpful in deciding which is |
| these advantages are: they are highly volatile, they | | | | best as of the moment. To be an effective investor, |
| can make large movement in prices over a short | | | | one must be well knowledgeable with the history of |
| period of time, and it requires less capital as initial | | | | the performance of these stocks. |