Penny Stock

A penny stock is a low-priced stock, generally trading under $5 a share, often (though not always) a small or micro-cap company with thin trading volume and limited public information. The SEC's formal definition uses the $5 threshold; traders sometimes use the term more loosely for anything trading in the pennies to low single digits.

Penny stocks are prone to sharp, catalyst-driven moves precisely because a small dollar amount of buying can produce a large percentage gain on a low share price and thin float, which is also exactly what makes them a favorite tool for pump-and-dump schemes and dilutive stock promotions.