Penny stocks, also called micro-cap stocks, are any stocks under $5, according to the Securities and Exchange Commission; however, some organizations consider stocks under $3 or $1 to be penny stocks, says Nasdaq. Penny stocks are riskier than regular stocks and require thorough research prior to purchase.
Penny stocks are riskier than other stocks because little information is available to the public, explains Nasdaq. Companies listed on the pink sheets—the place where penny stocks are located—do not have to file with the SEC and receive less regulation and scrutinization, meaning information about penny stocks is not always credible. For these same reasons, many scammers and fraudsters frequently sell penny stocks.