Penny stocks are common shares of a small public company that attracts minimal pricing. Companies with lower market capitalization usually offer penny stocks. These are also known as micro-cap stocks, nano-cap stocks, or small-cap stocks.

Different countries identify different valuation of penny stocks. In India, penny stocks are usually priced lower than Rs. 10. In the US, the stocks that are traded at a price less than $5 are termed as penny stocks.

As penny stocks are issued by small companies that may have huge potential for growth, penny stocks can provide higher returns than other securities. But at the same time these stocks are very risky since nothing can be predicted about small companies and information available may be very little. This lack of information along with poor liquidity makes the penny stocks susceptible to price manipulation by scammers.

Thus, these stocks can be termed as hit-or-miss securities as the small companies can either register huge growth over time or may fail in their initial years and incur huge losses.

Investment in penny stocks is advised only if the investor is fully aware of the risks associated with these stocks.

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