June 1st, 2008 | 
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Penny stocks are stocks that typically sell in the price range between less than a dollar and two dollars. They are sold on the promise of huge potential profits.
Why are prices of penny stocks so low?
- Generally, penny stocks are issued by companies that have not been in business long enough to establish a track record or a financial history.
- Companies with inexperienced managements also issue penny stocks.
- Even an erstwhile profit making company’s stocks can become a penny stock if it begins to incur heavy losses. The market loses confidence in the stock and pushes the panic button resulting in heavy selling of the stock. Panic breeds further panic pushing the price lower and lower until it reaches to a penny stock level.
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