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The 4 Tiers of Penny Stocks: Redefining “Penny Stocks”

Stocks trading under $1.00 were almost always small companies struggling to find their place in the market and as a result those securities were very speculative investments for traders or investors.
In this day and age, securities priced between $1-10.00 in many cases still represent some of the most speculative and risky investments. This is especially true for small companies in the Biotech, Internet, and Fin-tech sectors.
These stocks can come out with news overnight that result in a 50% drop to the downside or a 100% squeeze to the upside. Anyone investing or day trading in these types of securities has to be prepared for the possibility of a total loss.
Just for reference, when I took $583.15 and turned it into over $100k in 44 days, I was primarily trading stocks between $1.00 – $5.00. These stocks all meet the min listing requirements for the exchanges, which is important to me.
If I’m putting my hard earned money into a stock, I want to feel confident the company isn’t going to disappear overnight.
Tier 1 Penny Stocks: These are the penny stocks that we focus. They are listed on a major exchange like the NYSE or NASDAQ and are usually priced below $5.00 per share but can be a little higher priced than that. Tier 1 penny stocks are still speculative but less open to manipulation because they are required by the exchanges to provide financial information and are held to a higher standard than OTC penny stocks.
Tier 2 Penny Stocks: Traditional penny stocks, in my opinion, are stocks priced between 1 cent and 99 cents. They aren’t below 1 cent (if you didn’t already know, stocks can trade at fractions of a penny). It’s not uncommon to see a stock priced between 1 cent and 99 cents that is still listed on the NYSE or NASDAQ.
These companies will typically get a letter (which is made public), that they need to meet the listing requirements to have their stock above $1.00 within a certain amount of time. If they do it, the stock remains listed, if they can’t it will be de-listed and move to the OTC market exchange.
However, it’s very important to note that stocks that trade above $1.00 will never have a spread less than 1 penny. That means the stock will trade 1.01 x 1.02, or 1.05 by 1.06, but never 1.015 x 1.017. When a stock trades BELOW $1.00, the stocks will trade down to fractions of a penny.
Tier 3 Penny Stocks: Sub-Penny Stocks are stocks that are below 1 penny per share.  So that starts at .0099. These will not be NYSE or NASDAQ stocks, so for that reason I wouldn’t trade them. These aren’t particularly noteworthy beyond the fact that the companies aren’t strong enough to even have their stock priced at 1 penny per share.
Tier 4 Penny Stocks: Trip Zero Stocks (Priced .0001 – .0009) Trip Zero Stocks are priced with 3 zeros. These are stocks priced between .0001 and .0009 per share.
As you can imagine these stocks after often used as vehicles for manipulation. Each increment the stock moves up is a 100% move versus the entry price of .0001.
Many of the “hot penny stock” alerts are on sub penny stocks or trip zero stocks and primarily benefit the people who first bought the stock.
If somebody buys 100mil shares at .0001 ($10k) and the stock goes up to .0010 they will sell with $100k in profits. Many of the stock promotion newsletters are sent by people who bought huge positions of these penny stocks.

15 comments:

  1. Out of the four tiers of penny stock,I guess the Tier 1 penny stock is the best because they are less open to manipulation also listed on NYSE or NASDAQ...

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  2. Great information for people like me on the tiers of penny stocks. This was well detailed and will help new people that just learned about penny stock.

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  3. This stock education is the first time to come across such a detailed and comprehensive 4 tiers of penny stock. It has enlightened me on terms i never new existed.

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  4. Thanks for the additional investing tips. I am learning a lot from you. Thanks a lot.

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  5. This post is like a free stock course for me. I have learned for free the tiers I need to know but I will more likely want to invest in tier 1 stocks.

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  6. Its interesting to learn that trading with penny stock is in levels. At 4 tiers though there is a lot of manipulation but its a safe level to begin.

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  7. Its amazing how this stock education simplifies the stock market for me. It would take a person on another level to see how such pennies can be turned into real profits over time.

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  8. Many people will be benefited with this article, especially those who need investment tips. Stock trading would be profitable for them who have proper stock education.

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  9. Very true! Whenever you are doing any penny stocks trading, it's your duty to make sure you are dealing with a company that will last. There are other companies which might disappear anytime.

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  10. Interesting article regarding the 4 tiers of penny stocks. Who would have known that there is more to it than just being a seemingly "cheap" alternative in making money in the stock market.

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  11. This information will provide a good arsenal to my growing list of investing tips. Thanks for sharing and keep up the good work.

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  12. Tier 4 penny stocks seem to be the safest to invest in but the profits can be so low. It's a good starting point for any new trader.

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  13. I like tier 1 penny stocks because of their relative stability since they are not open to manipulation. It's always good to have some kind of assurance.

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  14. The 4 tiers of penny stocks are basically divided depending on how valuable the shares are. Very informative article indeed!

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  15. This has really improved my stock education level and I will be using it a lot in the future. I have learnt a lot from this post.

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