A Penny Stock deals with low priced shares as low as $5 with the idea that small amounts of money will bring big dividends. Low priced investment is generally handled by small companies. The quotation for a penny stock need not be approved by security exchanges. The business of a Penny Stock can be conducted over the counter OTC Bulletin Board and in the Pink Sheets.
A Penny Stock has to abide by certain conditions. The firm should approve the customer. He should not be kept in the dark. He must be asked to sign an agreement of understanding. He must be informed of the risks in a Penny Stock in writing. He must be sent a monthly report of the account statement showing the market value of his share. He must also be told of the current market quotation and the compensation the firm or the broker would receive.
A Penny Stock customer may not be in a position to trade frequently because it is difficult to get quotations for a Penny Stock. There is a danger of the share of a Penny Stock not getting quotations at all. The possibility of losing the whole investment looms large in front of a Penny Stock
