Which of the following accurately defines a Penny Stock?

A Penny Stock is typically defined as a share of stock that trades at a very low price, often below $1 per share, and is known for carrying a high level of risk. This characterization is due to the volatile nature of penny stocks, which usually belong to smaller, less established companies. These stocks can experience dramatic price fluctuations and often lack liquidity, making them riskier investments compared to stocks of larger, more stable companies.

When investors consider penny stocks, they should understand the potential for high returns but also recognize the significant risks involved, which include the possibility of substantial losses or the stock becoming worthless. This high risk is a defining characteristic of penny stocks, distinguishing them from more stable investments that typically show better financial health and consistency in performance.