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Criteria in Defining Penny Stocks
If you are wondering what penny stocks are and why some stocks are considered penny stocks by some people or organization whereas the very same stocks are not considered penny stocks by other kinds of people and organization then you have come to the right place. Understanding penny stocks, particularly defining penny stocks can be difficult especially if different people have different measurements or criteria for them. To help you in understanding more about penny stocks I have compiled some of the criteria used in defining which stocks is penny and which are not.
Some government and business organizations define penny stocks based on the actual price per share of the stock itself. Different people and organizations have different floors and ceiling on which stocks should be considered penny. For the United States Securities and Exchange Commission a stock that is priced for $5 per share or less is considered a penny stock. For other organizations a penny stock is a stock with a price per share of $2 or less. With just this first criterion we can see why there has been some confusion on what a penny stock really is.
Sometimes, penny stocks are defined not by the price per share of the stocks but by the kind of stock market or stock exchange by which the stock is being traded on. Some believe that those stocks that are being traded in stock markets such as Over the Counter (OTC), National Association of Securities Dealers Automated Quotations (NASDAQ) small cap, Over the Counter Bulletin Board (OTCBB) as well as in Canadian Venture Exchange (CDNX) and Pink Sheets, to name a few, are penny stocks.
A third criterion used in defining penny stocks if market capitalization or market cap. This is defined as the total value of the company computed by multiplying the total number of stock prices with the value of each stock. To illustrate, if Stock AB has a total of 1,000,000 stocks and each stock is priced at $0.80 each then the market cap of Stock AB is $800,000. Even the floors and ceilings of a market cap are in dispute. Some consider that if a corporation has a market cap of less than 10 million then this is considered a penny stock, others say it should be 15 million.
Since stock market prices are fluctuating and changing, some stocks that start out as penny stocks at the beginning of the day may not be considered penny stocks at the end of the day. Other stocks are considered penny by taking into account a combination of all three or some of these criteria. For example, Stock AB will be considered a penny stock if it is being traded in the OTCBB and has a market cap of less than $25 million.
Even with these criteria, each corporation, organization or exchange may still have their own definition on what a penny stock is. By enumerating these criteria I hope that I gave you an idea of how truly dynamic and different penny stocks can be.
Some government and business organizations define penny stocks based on the actual price per share of the stock itself. Different people and organizations have different floors and ceiling on which stocks should be considered penny. For the United States Securities and Exchange Commission a stock that is priced for $5 per share or less is considered a penny stock. For other organizations a penny stock is a stock with a price per share of $2 or less. With just this first criterion we can see why there has been some confusion on what a penny stock really is.
Sometimes, penny stocks are defined not by the price per share of the stocks but by the kind of stock market or stock exchange by which the stock is being traded on. Some believe that those stocks that are being traded in stock markets such as Over the Counter (OTC), National Association of Securities Dealers Automated Quotations (NASDAQ) small cap, Over the Counter Bulletin Board (OTCBB) as well as in Canadian Venture Exchange (CDNX) and Pink Sheets, to name a few, are penny stocks.
A third criterion used in defining penny stocks if market capitalization or market cap. This is defined as the total value of the company computed by multiplying the total number of stock prices with the value of each stock. To illustrate, if Stock AB has a total of 1,000,000 stocks and each stock is priced at $0.80 each then the market cap of Stock AB is $800,000. Even the floors and ceilings of a market cap are in dispute. Some consider that if a corporation has a market cap of less than 10 million then this is considered a penny stock, others say it should be 15 million.
Since stock market prices are fluctuating and changing, some stocks that start out as penny stocks at the beginning of the day may not be considered penny stocks at the end of the day. Other stocks are considered penny by taking into account a combination of all three or some of these criteria. For example, Stock AB will be considered a penny stock if it is being traded in the OTCBB and has a market cap of less than $25 million.
Even with these criteria, each corporation, organization or exchange may still have their own definition on what a penny stock is. By enumerating these criteria I hope that I gave you an idea of how truly dynamic and different penny stocks can be.
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