Glossary of Terms

Search common forex trading terms and definitions from A to Z.

All A B C D E F G H I J K L M N O P Q R S T U V W X Y

Below is a glossary of terms that are used in the online trading industry. Select the first letter of the word you are seeking from the list above to jump to the appropriate section of the glossary.

Penny Stocks

What are penny stocks?

Penny stocks are essentially stocks that trade for very small sums, generally defined by under $5.00, and by and large are traded over-the- counter (OTC). In the United Kingdom, a penny stock is defined as any stock with a share price below 1 GBP.

How does one use penny stocks?

Trading on penny stocks is much more risky than other stocks and CFDs. For one thing, penny stocks are much more speculative than traditional stocks, which makes accurate assessments of how the stock price will move and when much trickier. Second, because penny stocks are traded OTC rather than on any of the major exchanges, they are not closely regulated, which can – and on occasion does – result in scams and fraud. Finally, because the price action on penny stocks is extremely volatile, the bid-ask spread tends to be much wider than on traditional stocks, thus cutting even more deeply into an already risky profit margin.

This is not to say that there is nothing to gain from trading on penny stocks, only that it really should only be done by very seasoned traders who are not averse to taking more extreme risks.

Links related to penny stocks
Bid-Ask Spread
OTC Market