Penny Stock

A stock that trades below $5 per share, typically issued by small companies with limited operating history and traded on OTC markets rather than major exchanges. Penny stocks are notorious for low liquidity, wide bid-ask spreads, and susceptibility to pump-and-dump schemes. The SEC imposes additional disclosure requirements on brokers recommending penny stocks, and the Wolf of Wall Street era at Stratton Oakmont remains the most infamous example of penny stock fraud.