Penny stock

What is a penny stock

A penny stock is a share that trades at a very low price per share, usually issued by a small company and often traded in low volume.

There is no single global definition. In the United States the securities regulator defines penny stocks with a price threshold and conditions on exchange listing and company size. Elsewhere the term is informal. It usually means shares priced far below most other listed shares, often below their face value.

A low price alone does not make a share cheap. Price per share says nothing about value until you compare it with the number of shares, earnings and book value.

Worked example (hypothetical)

Imagine a small listed company whose share is quoted at a few paisa above the exchange's smallest allowed price step, called the tick.

• The bid (best buying offer) and the ask (best selling offer) are one tick apart.
• At such a low price, that single tick is a large share of the price. If you buy at the ask and sell at the bid straight away, you lose a noticeable part of your money before the price moves at all.
• Daily volume is thin. An order larger than what sits in the order book is filled at worse and worse prices, or only partly filled. See fill and partial fill.
• A small amount of buying can move the price sharply in percentage terms. A small amount of selling can do the same in the other direction.

The example shows the two main features of penny stocks: high trading cost relative to price, and low liquidity.

Penny stocks in Pakistan

In Pakistan, "penny stock" is a market and news term, not a legal category. Local reports use it for Pakistan Stock Exchange (PSX) shares that trade far below face value, often with a small free float. These shares often appear in daily "top volume" lists because a low price means many shares change hands.

The regulator is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. On broker lists, see the note here (per the SECP, lists of licensed brokers are on the PSX and PMEX websites).

Low-priced shares are also a common target of tips spread in chat groups. The SECP issues SECP warnings by press release naming platforms (Quotex 09.04.2025; IBKR look-alikes, IGIL Securities, BMA Capital No.108 etc. 22.05.2025; Hillhouse Capital, S-169 Wharton 13.01.2026), none of which names Exness. More on checking who you deal with is on Regulation and Safety.

Where you see the term

• News and market reports: "penny stocks led the volume table".
• Broker screeners: filters by price, volume or market capitalisation.
• Exchange notices: trading halts, defaulter segments and delisting notices often involve small, low-priced companies.

Edge cases

• Low price, large company: a share can be low-priced after many share splits and still belong to a large company. By size it is not a penny stock.
• High price, illiquid: a share can trade at a high price with almost no volume. It carries similar liquidity risk without the label.
• Price limits: circuit breakers can lock a thin share at its limit, so you may not be able to exit at any price that day.

Penny stocks are also prone to asset bubbles and dead cat bounces. They are usually not offered as leveraged CFDs. Where leverage is involved, losses can come fast. See risk management.

Related terms

• Blue chip: the opposite end of the market.
• Beta
• Free float
• Delisting
• Trading glossary

Frequent questions

What is the penny stocks meaning in simple words?

Shares with a very low price per share, usually of small companies, that often trade in low volume.

Is a penny stock always a bad company?

No. The label describes price and liquidity, not quality. Each company still needs its own analysis. See fundamental analysis.

Why are penny stocks risky?

The spread is large relative to the price and liquidity is thin. Prices also move sharply on small orders and are easier to manipulate.

Does Pakistan have a legal definition of penny stock?

Not as a formal category. It is a market and media term used for low-priced PSX shares.