Penny Stock

The term penny stock refers to a company's stock that is traded for less than $5 a share. The $5 price level comes from the 1934 Securities Exchange Act, a law which was passed by the U.S. Congress to control all securities transactions involving parties other than the original issuer. The Security Exchange Act stated that equity securities with a market value of less than $5 per share could not be listed on any national stock exchange or index. Although some penny stocks are traded on significant exchanges like the New York Stock Exchange (NYSE), the majority are traded over-the-counter (OTC) using either the privately held OTC Markets Group or the electronic OTC Bulletin Board (OTCBB). OTC trades don't take place on a trading floor. All quotations are generated digitally.