/noun Stock Exchange.

A penny stock typically refers to the stock of a small company that trades for less than $5 per share. Though some penny stocks trade on large exchanges, most trade via over the counter (OTC) transactions through the electronic OTC Bulletin Board (OTCBB) or through the privately-owned OTC Markets Group.

There is no trading floor for OTC transactions. Quotations are also all done electronically.

In the past, penny stocks were considered any stocks that traded for less than one dollar per share. The U.S. Securities and Exchange Commission (SEC) has modified the definition to include all shares trading below five dollars. The SEC is an independent federal government agency responsible for protecting investors as they maintain fair and orderly functioning of the securities markets.

/noun Stock Exchange.

A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings they accrue in order to accelerate growth in the short term. When investors invest in growth stocks, they anticipate that they will earn money through capital gains when they eventually sell their shares in the future.

Growth stocks may appear in any sector or industry and typically trade at a high price/earnings (P/E) ratio. They may not have earnings at the present moment but are expected to in the future.

Growth stocks tend to share a few common traits. For example, growth companies tend to have unique product lines. They may hold patents or have access to technologies that put them ahead of others in their industry. In order to stay ahead of competitors, they reinvest profits to develop even newer technologies and patents as a way to ensure longer-term growth.

/adjective.

The term small cap describes companies with a relatively small market capitalization. A company’s market capitalization is the market value of its outstanding shares. The definition for small cap varies, but generally means a company with $300 million to $2 billion in market capitalization.

Advantages of Small-Cap Stocks
One benefit of investing in small-cap stocks is the opportunity to beat institutional investors. Many mutual funds have internal rules that restrict them from buying small-cap companies. In addition, the Investment Company Act of 1940 prohibits mutual funds from owning more than 10% of a company’s voting stock. This makes it difficult for mutual funds to build a meaningful position in small-cap stocks.

Keep in mind that classifications such as large-cap or small-cap are approximations that change over time. Also, the definition of small cap stocks vs. large cap stocks can vary among brokers. To calculate a company’s market capitalization, multiply its current share price by the number of outstanding shares (or the number of shares the company has issued to the market).

/adjective.

A micro-cap is a publicly-traded company in the U.S. that has a market capitalization between approximately $50 million and $300 million. Micro-cap companies have greater market capitalization than nano caps, and less than small-, mid-, large- and mega-cap corporations. Companies with larger market capitalization do not automatically have stock prices that are higher than those companies with smaller market capitalizations.

Companies with less than $50 million in market capitalization are frequently referred to as nano caps. Both nano caps and micro caps are known for their volatility, and as such, tend to be considered riskier than companies with larger market capitalization. Market capitalization measures the market value of a company’s outstanding shares, calculated by multiplying the stock’s price by the total number of shares outstanding.