Penny stock

defined by the SEC as a security that sold for less than $5 per share and was not listed or authorized for quotation on a NASDAQ market exchange. Penny stocks are issued by companies with a short or erratic history of revenues and earnings, and therefore such stocks are more volatile than those of large, well-established firms traded on the New York or American stock exchanges. Many brokerage houses therefore have special precautionary rules about trading in these stocks and the securities and exchange commission (SEC) requires that brokers implement suitability rules in writing and obtain written consent from investors.
All penny stocks are traded over-the-counter, many of them in the local markets of Denver, Vancouver, or Salt Lake City. These markets have had a history of boom and bust, with a speculative fervor for oil, gas, and gold-mining stocks in the Denver penny stock market in the late 1970s turning to bust by the early 1980s.

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This entry contains information applicable to United States law only.

Inexpensive issues of stock, typically selling at less than $1 a share, in companies that often are newly formed or involved in highly speculative ventures.

Penny stocks are usually available for sale over-the-counter, that is, among brokers and customers themselves, as opposed to being listed on the American Stock Exchange or the New York Stock Exchange.

A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets. 

Investopedia Says:
The term itself is a misnomer because there is no generally accepted definition of a penny stock. Some consider it to be any stock that trades for pennies or those that trade for under $5, while others consider any stock trading off of the major market exchanges as a penny stock. However, confusion can occur as there are some very large companies, based on market capitalization, that trade below $5 per share, while there are many very small companies that trade for $5 or more.

The typical penny stock is a very small company with highly illiquid and speculative shares. The company will also generally be subject to limited listing requirements along with fewer filing and regulatory standards.

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