Are Cheap Penny Stocks Worth It?

The question came up this week, “Are penny stocks worth it?” and I’ll be the first to say it has everything to do with you as a trader. The cheaper the stock, the higher the risk in many cases. The main reason behind that is small price changes equate to larger shifts in percentage. When you’re talking about penny stocks under 10 cents, the margin for error, so to speak, is slim. Case in point, if Apple or Amazon drops 1 or 2 cents, it doesn’t move the needle at all. However, if you’ve got a 10 cent stock dipping by 2 cents, for example, your position just dropped 20%.

One reason you don’t find too many penny stocks on Robinhood under $0.10 is due to listing requirements. Since the application tends to cater mostly to listed penny stocks (those on the NYSE & Nasdaq), certain limits are set by the exchanges that companies need to adhere to. One of these limits is maintaining a minimum bid price.

This is set at $1 in most cases. So for a Nasdaq or NYSE stock to be trading for less than a dime, it’s infrequent. But when you’re talking about OTC penny stocks, for instance, there are many that you’ll find trading below $0.10 and even below $0.01. In fact, if you’re wondering what the lowest priced penny stocks are, they are trading at $0.0001.

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This is one of the highest risk sets you could come across. A small move of a fraction of a penny could mean huge wins or massive losses. So for this article, we’ll focus on low-priced stocks but the ones trading at least $0.01 or greater.

Small-Cap Stocks Dominate The Market

There is no question about it that small-cap, micro-cap, and nano-cap stocks are captivating traders. Let’s set the OTC stocks aside for a moment. Yesterday we discussed the most active stocks on the NYSE and Nasdaq. These are the ones most actively traded by both retail traders and funds daily.

See: Penny Stocks Dominate Top 10 Most Actives As Buying Frenzy Resumes

Out of the top 10 most active listed stocks in the market yesterday, 8 were stocks under $5. Ever further, major market benchmarks like the Russell 2000 Small-Cap ETF (IWM) justified this argument and the strength that small-caps have, in general. The IWM made new all-time highs on Thursday.

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Of course, the SPY and QQQ – benchmark ETFs for larger markets – also followed suit; their respective increases in price weren’t nearly as large as the IWM. Furthermore, we saw the same trend take hold of the market on Friday as well. So with a clear strength in smaller stocks and higher demand by day traders, it could make sense to have these cheap stocks on your radar.

But what about the cheapest penny stocks in the stock market today? The fact of the matter is that some of the highest volume stocks on any given day are trading on the OTC. Are there listed stocks that are in the top 10? Of course, but when you’re talking about billions of shares trading per day, the OTC or “Over The Counter” is where these higher volumes are.

OTC Penny Stocks Are Very Risky

Herein lies some of the bigger risks. OTC penny stocks tend to have much greater risks involved. They aren’t required to report certain information, and many are actually just ghost ship stocks. Many haven’t filed a statement or put out a press release in years. In fact, some of the most active stocks today fall under this umbrella. They’re also at greater risk of being halted or delisted due to not reporting current information.

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Many OTC penny stocks are also targets of massive manipulation campaigns, especially when you get down to the cheapest of cheap stocks. So if you’re looking at any of these stocks, make sure you are fully aware of the much larger level of risk you would be taking on. Not only are you dealing with high risk due to lower prices. You’re also dealing with high risk due to factors outside of the typical market risk usually seen from listed penny stocks. This can also boil down to the fact that many of these stocks are thinly traded. Lower volume and fewer shares in the market can lead to massive spikes both up and down, in the market for an OTC penny stock.

Also keep in mind that there are different tiers of OTC and some do require certain reporting information. In our article, “OTC Penny Stocks VS Nasdaq/NYSE Penny Stocks,” we go over what the difference between the OTCQX, OTCQB, and PinkSheets is. We also discuss many of the Pros and Cons of these lower listed penny stocks.

Top 10 Penny Stocks Under 10 Cents On Friday

Again, this is a list of penny stocks under $0.10 by over $0.01, and it’s important to understand the risk that these stocks carry. Regardless, on Friday, these are some of the most active names in the market:

  1. Social Life Network Inc. (OTC: WDLF)
  2. Global Technologies, Ltd. (OTC: GTLL)
  3. American Premium Water Corporation (OTC: HIPH)
  4. InnerScope Hearing Technologies, Inc. (OTC: INND)
  5. Blue Sphere Corporation (OTC: BLSP)
  6. Marijuana Company of American, Inc. (OTC: MCOA)
  7. American Green Inc. (OTC: ERBB)
  8. Alternet Systems Inc. (OTC: ALYI)
  9. Medical Marijuana Inc. (OTC: MJNA)
  10. Green Concepts Inc. (OTC: INKW)

By no means is this list a suggestion to buy, sell, or hold. It’s only showing some of the most actively traded penny stocks in the market on Friday. To give you an idea of the stark difference between most active OTC penny stocks and those on main exchanges, the highest volume traded by any stock on the list above as of 2:11 PM EST was over 1 billion. The highest among the highest volume penny stocks on the NYSE or Nasdaq was under 350 million.


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