Not many of us know that penny stocks have existed in different forms for as long as stock markets have existed. Although some little facts and figures give us a detailed account of the beginning of penny stocks, we do know that many companies offered a large number of shares for pennies.
However, we possess accurate information about the Stock Market Crash after the year 1929. That was the era when the US government contemplated re-establishing securities rules and regulation to prevent the speculations that surround penny stocks.
The need for regulation was because the government held the rumors surrounding penny stocks responsible for triggering the stock market crash that occurred in 1929. Evident rules and regulation would aid investors to steer clear of value-less and low-quality stocks to promote stocks from renowned companies only.
The American government passed the Securities Exchange Act in 1934. This step helped to facilitate penny stocks business since according to this act, penny stocks came under equity securities by the SEC. This step meant that penny stocks were involved all unlisted trading for less $5.
Penny stocks investments saw a rise throughout the 1990s when new investors entered the stock market. However, before the crash of 2007-2008, the definition witnessed another change. The SEC inserted a caution according to which penny stocks are tradable on American and foreign securities exchanges in a few situations.
The penny stock market was fairly quiet and innate throughout most parts of the twentieth century. This occurrence was mainly due to the absence of globally recognized communication systems that prevented penny stocks from becoming a prevalent trend.
Since penny stocks previously relied on phone systems only, investors were unable to find any relevant information about penny stocks in newspapers or other accessible sources.
But penny stocks continued to exist and the OTC markets established within this time helped to define several kinds of penny stocks.
However, penny stocks investments skyrocketed with the advent of the internet. These investments experienced a massive growth in the mid-1990s. As the internet continued to become more accessible, it only added more fuel to penny stocks.
It is not surprising to know that a large number of world-famous corporations have also traded as penny stocks. Despite the fact that they are now worth billions, a few of these companies once traded for less than $5 per share.
For instance, Ford is not a name that would come to your mind when discussing penny stocks. Nevertheless, it has ventured into the penny stock territory. Ford Motor Company has traded for less than $2 in the past. That was the time when the company was going bankrupt.
Sadly, penny stocks are also associated with many scams and frauds to trick potential investors to be a part of the many pump-and-dump schemes. Many fake traders are looking to sell penny stocks at discounted rates. Such schemes devise attractive methods to offer penny stock for a cheap price and seemingly high returns. However, make sure you carefully choose penny stocks before making any big investments.