Glossary of Penny Stock Terms
Penny Stock Definitions
Annual Report - This is the yearly financial statement that shows a corporation’s financial condition.
Ask Price – The asking price is the amount at which a broker, dealer, market maker, or trader is willing to accept for a security. In other words, it’s the price at which you can purchase the stock, or the amount at which others would have to pay to get the stock. Along with the price, the ask quote will generally also stipulate the amount of the security (or shares) willing to be sold at that price. See also, “Bid Price vs. Ask Price Explained.”
At The Market - An order placed by an individual instructing a broker to buy or sell a security at the current trading price.
Averaging Down - Buying more shares of a stock you already own, and getting the new shares at a lower price because the stock has been dropping.
Bid Price - The bid price is the price someone out there is willing to pay for the security or stock, such as a broker, dealer, market maker, or trader. This is also the price at which you could sell your stock if you decided to. Often the bid will stipulate both the price at which the buyer is willing to purchase the security and the quantity (of shares) needed to be purchased. See also, “Bid Price vs. Ask Price Explained.”
Block Trade - A trade of 10,000 or more shares of stock.
Blue Chip Stocks - Companies that are considered safe and conservative investments, with low downside risk. These stocks are widely held, have major market capitalizations, and have a certain degree of price stability.
Book Value - The total assets of a company minus liabilities and shares of preferred stock.
Broker - Someone who acts as an agent in the buying and selling of securities.
Churning - Excessive trading of a stock within an account by an authorized individual that has control over the account. This practice is illegal.
Commission - The broker’s fee for buying or selling a security.
Common Stock - The securities having last claim to the assets of a corporation. Most common shares have voting rights, and many pay a dividend.
Day Order - A buy or sell order that is valid only for a single trading day.
Dealer - When a brokerage house is acting as a principal in a trade.
Delisted - When a stock ceases to be traded by a stock exchange it is considered delisted. There are various reasons a stock would get delisted, such as failure to meet the parent exchange’s listing requirements, movement to another exchange, or being taken over by another company.
Discretionary Accounts - An account in which a stockbroker has the written permission of the client to make trades in the account.
Diversification - Spreading your capital among many different types of investments for the express purpose of reducing risk.
Dividend - A payment made by the company to the stockholder. This is usually money derived from corporate profits.
Dollar Cost Averaging - Buying securities at regular intervals and at fixed amounts.
Due Diligence - Doing your research on a stock before making a purchase, including a fundamental analysis and a technical analysis.
Duration of Trade Order - The amount of time you want a trade order to be active for. When you enter a buy or sell order, it can be “good until close” (it will expire at the end of the day, whether filled or not), or good until a certain date you set (e.g. good until Friday, 18th). Orders expire at the end of the trading day unless you have set a longer duration.
Earnings Per Share (EPS) - The amount of net income earned for each share of common stock after payment of dividends to preferred stockholders.
Effective Date - A date in time when the registered offering of a security may be sold to the public.
Equity - The ownership value of a security held in the brokerage name.
Float - The number of shares available for trading purposes. This does not cover the total amount of outstanding shares because some shares may be restricted. The price of stocks with small floats can move dramatically in heavy trading as the entire float can be traded in one day. Stocks with very large float require an enormous amount of trading before the stock price can really move. Be careful of large floats as these stocks could encounter a reverse stock split.
Fundamental Analysis - A method of security valuation which involves examining the company’s financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, industry conditions, and competition. Fundamental analysis takes into consideration variables related to the company itself.
Going Public - A first time offering of securities to the public.
Growth Stock - A company that has demonstrated the ability to increase profits over at least a five year period of time.
GTC Order - An order that is “Good Til’ Canceled.” The order to buy or sell that continues in effect until canceled.
Holding Company - A corporation which owns the shares of another.
Hot Issue - A new issue that is in great demand.
Hype - Misleading and inaccurate information used to promote a stock.
In-and-Out - Purchasing a stock and then selling it almost immediately. Usually for a quick profit.
Inside / Outside Prices - Penny stocks are commonly bid on using two price figures. There are generally two Bid prices listed and two Ask prices listed. This is called the inside, as well as the outside, bid and ask. This is the range in which a penny stock can be bought or sold. In most cases, you will want to consider the outside bid and ask prices as well as the lower bid and the higher ask prices when evaluating the penny stock.
Inside Ask - See “Inside / Outside Prices”
Inside Bid - See “Inside / Outside Prices”
Investment Banker - The underwriter taking a firm public.
Issue - A company’s security.
Large Cap Stocks - The “Cap” refers to capitalization (number of shares times price per share = company capitalization). Large capitalization stocks are worth hundreds of millions of dollars, as opposed to small cap stocks, which may only be worth $50 million or less.
Last - The price of the stock during the last transaction.
Last Size - The number of shares involved in the last transaction.
Leverage - Using borrowed funds to increase the rate of return on a investment.
Limit Order - When a individual instructs a broker to buy or sell a security at a clearly stated price, or better.
Listed Stock - A stock that is listed on one of the major exchanges.
Margin - The act of buying securities with borrowed money provided by the brokerage firm.
Market Capitalization - Multiply the stock price of the company by the number of shares that are outstanding to get the total dollar value of all shares in the company. For example, company XYZ with 1 million outstanding shares at $2 each has a market cap of $2 million.
Market Makers or MM’s - An Over-The-Counter dealer who actually does the buying and selling of securities. They also set the Bid/Ask price. There can be multiple MM’s per penny stock, and each with a slightly different price. When you place an order for a penny stock, the MM’s evaluate the offer and decide whether to fill it or not.
Market Orders - You want to buy or sell shares of a stock without providing a price per share that you are willing to accept. You will get the best available price at the time your order reaches the market.
Market Price - The current or last reported price at which a stock traded.
Mark-up Prices - Some broker or dealers will mark up the price of the security to a certain degree. In the sale of penny stocks, this may be an additional cost to take note of. This is where a broker might hold a penny stock in its account for purchase so as to reduce the risks associated with market price volatility, or to maintain an inventory of this product. This usually happens when they need to maintain inventory sufficient to the supply demand that is out there to help maintain orderly and liquid markets.
Match Orders - This occurs when a broker attempts to offset either heavy buying or selling in a particular stock.
NASD - The National Association of Securities Dealers.
NASDAQ - National Association of Securities Dealers Automated Quotations. The automated electronic price quotation network for of the NASD to trade in a company’s stock.
NASDAQ Small Cap - A sub-section of the NASDAQ, companies with smaller capitalizations or that cannot meet the listing requirements of the main NASDAQ exchange, trade upon the Small Cap. Most stocks on the NASDAQ Small Cap are priced at $1.00 to $5.00 per share and technically fall into the category of a penny stock.
Net Income - Profits from company operations.
Net Worth - Assets minus liabilities.
Nominal Quotes - Over-the-Counter quotes that are neither recent nor necessarily accurate. Sometimes called “ball-park quotes.”
NYSE - New York Stock Exchange. The largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants.
Odd Lot - Stock trades of fewer than 100 shares.
Offer - The price a security is offered for sale.
Off-The-Board - Refers to securities not executed on one of the national exchanges.
Open Order - An order that has been given to buy or sell stock, but has not yet been completed or filled.
OTC - Over-The-Counter. Refers to stocks that are not traded on a regulated exchange such as the NYSE.
OTCBB - Over-The-Counter-Bulletin-Board. A regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. An OTCBB equity security generally is any security that is not listed or traded on NASDAQ or a national securities exchange. OTCBB securities include national, regional, and foreign equity issues, warrants, units, American Depository Receipts (ADRs), and Direct Participation Programs (DPPs). In other words, it is a system for creating some regulation and accountability for stocks not traded on the main exchanges.
Outside Ask - See “Inside / Outside Prices”
Outside Bid - See “Inside / Outside Prices”
Paper Profits - Profits on securities that become real only when the security is actually sold and the proceeds received.
Paper Trading - Keeping track of imaginary money in real investments, so that you can see how you would have done if you had actually traded.
Par Value - Dollar value assigned to a share of stock by the company’s charter.
Partial Fill - When you trade only a portion of the shares you had intended. For example, you want to buy 4,000 shares of company XYZ, but at the end of the day have only acquired 2,000. You may still take a full commission charge from your broker for a partial fill.
Penny Stocks - Low priced stocks selling for less than five dollars per share. Sometimes called micro-caps or small caps. Many big name corporations have traded in this price range at one time or another.
Pink Sheets - A listing of bid/ask prices and market-makers of OTC stocks that do not have a stock symbol. These stocks generally trade without any reporting requirements or regulation, and have no responsibility to you, the investor. They are very hard to buy and sell, as the trading activity in them is very low and sporadic.
Public Offering - The sale of securities to the general public.
Pump and Dump - A scheme where stock promoters try to mass-market and hype a stock to generate a lot of outside buying to artificially raise the stock price so they can sell their own shares at a profit before the rest of the market. This is often done via email spam campaigns or boiler room telemarketing.
Quote - Usually the bid/ask price you receive from your broker or online service. It’s the highest bid to buy and the lowest offer to sell your stock at a specified time.
Rally - A very sudden increase in market value and activity.
Registered Representative - Another name for a stockbroker.
Restricted Shares - One example of restricted shares could be stock options held aside for company employees as part of their compensation. By rule these have to be held for a specified length of time before they can be sold which is why they are called “restricted.”
Reverse Split - A reduction in the total outstanding number of shares caused by reissuing shares at a higher par value.
Rights Offering - An offering by a company to its shareholders to purchase additional shares of stock for a definite period of time.
Round Lot - Usually a 100 share unit of stock.
Secondary Market - The market in which you can buy and sell securities following an initial offering.
Security Dealers - Securities dealers are sometimes called “market makers” because they help facilitate smooth trading in a stock market. Security dealers keep an inventory of stocks for the purpose of buying and selling. They are sort of a buffer in the market, ensuring that stocks are readily available to buy/sell at anytime. They make their money by building a commission into the pricing of the stocks, which is the bid-ask spread, or “spread.”
Sell Order - An order given by an individual to his broker to sell his stock.
Shares Outstanding - The number of company shares owned by the public and not held by the company.
Short Sale or Short Selling - A strategy of selling shares first, that you technically don’t own, then having the commitment to buy them back at a later date. This is done by borrowing a security and selling it. You do this because you expect the security to decline in price, and you expect you can buy it back at that lower price before it would go up.
Small Cap Stocks - The “Cap” refers to capitalization (number of shares times price per share = company capitalization). Small capitalization stocks are worth a few million dollars, or perhaps as much as $50 million dollars, as opposed to large cap stocks, which may be worth hundreds of millions.
Speculation - The aspect of investing whereby you take a chance or are gambling on a stock in “hopes” it goes up. Generally by not having done your due diligence in researching the company before investing, or the company stock itself is speculative because it depends on an all-or-nothing event such as a start-up company’s new product launch, a new mining company successful exploration, or new drug getting government approval.
Spread - The difference between the Ask and the Bid Price.
Stock Certificate - A document proving ownership of a security.
Stock Split - Dividing existing stock into more shares and reducing the price per share to help improve the stock’s marketability.
Stock-Limit Order - An order to buy or sell a stock when the price reaches a certain level.
Stop Loss Order - An order to sell a stock if a certain price is reached.
Stop Order - An order to sell at a price below the current market, or an order to buy at a price above the current market.
Street Name - Stock kept in the name of the broker instead of the person that actually owns the stock.
Syndicate - A group of underwriters or investment brokers that distribute a new or secondary issue of securities.
Takeover - When one company buys out the shares of another, with the purpose to acquire and run the other. Many penny stocks and their share prices benefit when they are acquired or taken over by a larger firm.
Target Company - The company that is the subject of the take-over attempt.
Technical Analysis - A method of evaluating securities that looks at patterns on the trading chart and analyzing data and statistics generated by past market activity, such as past prices and volume, in order to forecast or predict the future direction of prices. See also, Technical Analysis of Penny Stocks.
Tender Offer - A public offer to purchase shares of a company from the existing stockholders.
Ticker Symbol - The letter combination that represents a particular stock. For the purposes of trading and researching stocks, you need to know the company’s unique ticker symbol. For example, General Electric trades under the ticker symbol ‘GE’, while Ford Motor Company trades under the ticker symbol ‘F’.
Trader - Someone who buys or sells stock for his own account to make short term profits.
Volatility - A measure of price movement in a stock.
Volume - Usually the number of shares traded for the market, or a stock.
Warrant - A certificate that gives the holder the right to buy a stock at a specific price, within a specified time period.
Wash Sale - A supposed tactic used by Money Makers to give the illusion of heavy trading volume where the Money Makers repeatedly buy and sells shares to each other at equal prices.
Yield - Return on investment expressed as a percentage of current price.
Buying Penny Stocks
