A Penny stock is a slackly defined expression that can be used in reference to any stock trading at prices below $1 per share.
Penny stocks are most frequently used to represent stocks of companies with very small market capitalizations that trade on The Over the Counter Bulletin Board or the Pink sheets market, although officially it can cover any stock under $5 per share.
The SEC has specified broker requirements for penny stocks as well as the requirement that brokers who wish to offer penny stocks to their clients must give special warning to them of the danger of penny stock investment.
On the other hand penny stocks or small cap stocks are not usually covered by Wall Street analysts or mentioned in business media.
Penny stocks are usually criticized for being risky investments. Small cap stocks are less regulated and have to meet fewer listing requirements, can have doubtful business practices, and can be extremely illiquid stocks.
The speculative nature of penny stocks together with the lack of oversight and media exposure can make them susceptible to stock manipulation schemes such as pump and dump or poop and scoop.
Small cap stocks can be vulnerable to stock manipulation frauds for instance pump and dump. The fraud work by popularizing a stock so that demand increases, the price increases, and then all efforts at holding the price up are stopped the progress of and the stock price crashes.
The above knowledge is beneficial for all new as well as expert traders.