Penny stocks are SEC-defined as stocks priced under $5/share. Learn the legal definition, OTC vs listed venues, and what makes penny trading different.
The SEC defines a penny stock as any stock priced under $5 per share. In practice, most traders narrow that further: sub-$1 names are usually called ‘true’ pennies, while $1-$5 names are ‘low-priced’ stocks. Both share the high-volatility, low-liquidity, wide-spread characteristics that make penny stock trading distinct from large-cap investing.
Beyond price, the SEC's penny stock framework triggers extra broker-dealer obligations under Rule 15g-2 (for non-listed penny stocks), including a disclosure document that summarizes the risks. Exchange-listed penny stocks (Nasdaq Capital Market, NYSE American) escape some of those rules but still trade with the volatility profile that defines the category.