A penny stock is a stock that trades for less than $5 a share and belongs to a tiny firm. Though some penny stocks are traded on major exchanges like the New York Stock Exchange (NYSE), the majority are traded over-the-counter (OTC) through the electronic OTC Bulletin Board (OTCBB) or the privately held OTC Markets Group. OTC transactions do not have a trading floor. Quotations are also done electronically.
Penny stocks in Indian stock market are those stocks that are purchased and sold at a very low market price, such as less than Rs.10 and hold very low market capitalization, which is usually less than 100 crores.
Penny stocks tend to have low liquidity and are highly unpredictable in nature, which makes them highly risky to trade.
Generally, penny stocks are offered by small-cap companies for sale and these stocks are listed on smaller exchanged. However, on BSE and NSE, one can find a few numbers of penny stocks.
Penny stock involves high risk and thus have a higher probability for its shareholders.