The Allure and Peril of Penny Stocks

Penny stocks, typically trading below $5 per share, represent small-cap companies with market valuations under $300 million. These high-risk, high-reward securities primarily trade over-the-counter, where lax disclosure requirements and low liquidity amplify volatility. While the potential for explosive gains attracts speculative investors, the lack of transparency and wide bid-ask spreads often lead to dramatic losses.

The OTC market's structural inefficiencies create a treacherous landscape. Thin trading volumes magnify price swings, while informational asymmetry leaves investors vulnerable to sudden downturns. Market participants chasing ground-floor opportunities frequently discover these micro-cap securities behave more like lottery tickets than investments.