Penny stocks, also commonly referred to as small-cap stocks, defined as a stock with a share
price below $5. The US Securities and Exchange Commission (SEC) defines them as such, however, penny stocks are often defined as a stock with a share price below $1 by those in
the investor community. Penny stocks are the stock market's equivalent of junk bonds in the bond market. Investing in penny stocks can be more riskier than trading mid to large-cap stocks.
Severe and long lasting drops can quickly occur, with little warning. Conversely, penny stocks can yield rapid gains, sometimes up to 1000% in the matter of days. This coupled with the low price, often tempting the new investors into trading penny stocks.