What exactly are the Penny Stocks?

To begin we must distinguish the concept of "Penny Stocks" with the so-called horse mackerel and low market capitalization companies. For the Commission of stock exchange and securities (SEC), a low market capitalization company is undertaking whose market capitalization is between 50 and 300 million dollars.
Although the term of "action penny or penny" applies to every company that traded below $1, the truth is that the high risk of the penny stocks comes not both their valuation, but their origin and status. However, any company that quoted below 1 dollar/euro, will always have more risk and probably more volatility than the rest, but does not have to be a penny stock. Therefore, the penny stocks with which timan investors come from the OTCMarkets, and we will see why they are that high risk.

Type of Penny Stocks.

OTC pink

Of the three levels, the OTC Pink (pink sheets) are those of lower quality, and include companies in default or with serious problems of liquidity and funding, as well as a large group of companies that do not yet have a only product on the market. I.e., some of them do not have a business and are a simple project or laboratory study. They are companies that do not meet the necessary requirements to quote, are not required to submit reports to the SEC, and therefore all information investors receive is that the company publishes. These companies are not audited, so it could sell shares in a company that has no commercial activity for more than 12 months.

OTCQB

They are in the middle level of risk. Like the OTC pink, do not have the minimum financial standards to quote in a decent market. But unlike the OTC pink, these companies have the obligation to submit documents and appropriate accounts to the SEC. Yet here we are still finding very small enterprises or in initial phase and no investor knows for sure if they will be profitable sometime or eventually disappearing.

OTCQX

These companies already have more credibility within the risk leads to follow. At this level of actions we would already find companies that if they meet many of the financial standards and for being, in a sense, companies sponsored by other companies or large investors who are betting on the future of this company. Investors have access to transparent and audited accounts of these companies.

JP Morgan and Deutsche Bank are often "sponsor" to many of these companies exert like tutors and supporting them, which does not prevent that many of them end up not taking off. However, the probability of success when it comes to investing in one of these companies, though low, is much higher that choosing one of the two options above. In this link you can see which companies are traded at this level and who sponsor them.