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Turn $200 into $100K in just 3 months with this FREE Penny Stock Picking Report. Master these Candlestick Patterns. Read the story of Richard Samuels, a post office mailman with a head injury and how he made a fortune with these Neutrino Forex Signals! What is a penny stock? Many investors mistakenly believe that any stock trading below $5 per share is a penny stock. By defining a penny stock as a stock trading for less than $5 per share, they separate themselves from trading highly risky stocks. There are some who think that penny stock is a stock that trades for a cent.

Both these definitions are correct. There is not one way of defining a penny stock. But the most accurate definition of a penny stock is a stock listed on the Over the Counter Market and the Pink Sheets.

This definition eliminates all those stocks that get traded on New York Stock Exchange or NASDAQ Small Cap Market for let’s say $0.5. Very few stocks on these major exchanges get traded for below $1 per share. This is a sign that the company whose stock once traded for way above this price is in trouble due to mismanagement or some other financial problem and is headed for a bankruptcy and will soon be delisted from these major exchanges.

Many investors specialize on investing in companies headed for bankruptcy. But it is always more profitable to invest in companies that are awaiting their future than companies that have no future and are fast headed to their decline and liquidation. Now many companies who now trade for more than $50 once traded for under $1 like Microsoft, MCI, Toys R Us and many others. SO you can well imagine the potential for penny stock investing.

So what is an Over The Counter Market? The Over the Counter Market or Over the Counter Bulletin Board (OTCBB) is a regulated quotation service that displays real time quotes, last sales price and volume information in stocks listed on it.

What types of stocks get traded on the Over the Counter Bulletin Boards (OTCBB)? Stocks that get traded on OTCBB might include national, regional, foreign equity issues plus warrants, units, ADRs (American Depository Receipts) and DPPs ( Direct Participation Programs).

The OTC Market started in 1990 as a result of the Penny Stock Reform Act of 1990 that mandated the SEC to institute an electronic trading system that would abide by the rules of the Section 17B of the Exchange Act. So an electronic system was started that later developed into the Over the Counter Bulletin Board (OTCBB). Listing requirements for OTCBB are not as stringent as on NYSE or NASDAQ. But many penny stock that get traded on OTCBB eventually get listed on NYSE or NASDAQ. So penny stock investing can be highly profitable!