Dirt Cheap Stocks - Often Known as Penny Stocks

Dirt Cheap Stocks - Often Known as Penny Stocks

When people talk about penny stocks they often refer to them as stocks that have a low market value. It is fair to say they are often highly speculative stocks which are unlisted on the main stock exchanges, and with small market capitalization. A perhaps polite way of saying they are dirt cheap stocks.

If a stock has any of these attributes it will be often known as a penny stock.

Although, as the name implies, penny stocks do have very low value, it is very difficult to say how low the value should be for some stocks to be described as a true penny stock. There are a lot of divided opinions about the price of the stocks, however on the whole it is a fact that you can purchase penny stocks cheap

Penny Stocks Have Low Value, it's true - but are they just dirt cheap stocks ?

So what is the definition of penny stocks ?  In general, if the price is really low then we are quite definitely talking about penny stocks.

Some experts and market commentators may say that stocks with a price below $5 per stock are penny stocks. Other, equally respected, people are saying that only stocks with value below $3 should be considered as penny stocks. And just to complicate matters, there are some other people who claim that a stock is penny stock only if its value is below $1. 

Below $5, Below $3 or even below $1, when you look at "regular" stocks there is no doubt that it is possible to purchase penny stocks cheap in comparison with the others on the market

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Penny Stocks Are Not Listed On The Stock Exchanges

Penny stocks also tend not to be listed on the main stock exchanges. Because of this, penny stocks should be thought of as highly speculative and they bring you higher risk when investing in them. The risk is higher because if a stock is "listed" then there are many regulations that the company must satisfy. And, the penny stocks which are not listed do not meet the regulation. They are simply sold outside the stock exchange and investors should be very cautious about them. Penny stocks

Penny Stocks Have A Low Market Capitalization

Another consideration of penny stocks is its market capitalization. By way of explanation: Market capitalization is the market value of a single stock from a certain company multiplied with the number of all stocks issued by the same company, and which can be found on the market. For example, if some company has issued 10,000 stocks and market value of the stocks is $10 than we can calculate market capitalization of the company of $100,000.

So if a company has market capitalization below $300 million than it is considered as penny stock. And if market capitalization of some stocks is below $50 million they can be considered as nano-cap stocks.

Penny Stocks Are Highly Speculative

In the previous example the stocks from the company can be considered as penny stocks because the market capitalization is below $300 million. They are also nano cap stocks although the price is not lower than $5. We should also state that there is high risk in investing in these stocks. They are not under regulatory control of stock exchanges, although the SEC does oversee their trading. Penny Stocks (or any dirt cheap stocks) should be thought of as being highly speculative and this is why they are avoided by most conventional stock market investors.

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