Listing requirements vary from one exchange to the next. On the New York Stock Exchange (NYSE), if a security's price closes below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process. If a ticker the letters "BC" attached indicate the stock is non-compliant. But such companies may continue trading normally on the exchange during their probationary periods. Probationary periods are the time they have to become compliant with the rules.
A penny stock is commonly defined as a share of stock that trades for less than $5 per share. Some sell for just pennies, hence the name penny stocks. They can be found on all stock exchanges. They can also be traded over the counter through the OTC Bulletin Board (OTCBB) and Pink Sheets.
A margin call occurs when the value of an investor's margin account falls below the required amount set by the broker. This is usually the result of declining stock values in the account. The investor will have to deposit more cash and/or securities, or sell some of the stocks held in their account in order to bring the account up to it's required minimum value.
Short selling is a trading strategy that bets that a certain stock will decline in value. It can be a speculative investment or hedge against the downside risk of a long position. To open a short position, the short seller borrows shares of a security. The short seller then sells the borrowed shares. The strategy is that the securities will decline in price and can be purchased back at a lower price and then returned to the broker. The risk of loss on a short sale is theoretically unlimited since the price of a security has no upside limit.
A short squeeze can occur when there is a lack of supply and an excess of demand for stock due to short-sellers covering their positions. This increase in volume may cause an upsurge in demand for the stock, which in turn causes the price to rise further. This new demand may trigger margin calls, which would force short sellers to buy more of the stock to cover their margin call, also increasing demand and pushing up the price of the stock even more. Short squeezes are more likely to occur when a large percentage of a stock's float is short and owners of the stock do not want to sell because the stock is rising price.
An over-the-counter market is a decentralized market in which market buyers and sellers trade securities without a central exchange. Stocks are traded electronically by dealers who act as market-makers by quoting prices at which they will buy or sell a security. A trade can be executed between two participants without others knowing the price at which the stocks were traded. OTC markets are less transparent than stock exchanges. There are fewer regulations. Sometimes there is little information available for a company, making it difficult to make a wise investment. There also may be a lack of liquidity manifested by a large gap between the bid and ask price.
American depositary receipts are negotiable instruments issued by a U.S. depository bank. They represent shares of stocks in a foreign company. They trade on U.S. markets just like any other stock. They make it easy for US investors to trade foreign stocks since they are traded in US dollars instead of the currency of the country in which the company is registered. They may be marketed as one share of the foreign stock, a part of one share, or multiple shares. Nevertheless, the market price of an ADR closely matches that of the company's stock on its home country's exchange.
Small cap refers to stocks with a market capitalization in the range of $300 million to $2.5 billion. To calculate a company's market capitalization, multiply its stock price by the total number of shares outstanding. As an example, if a company has 10 million shares selling at $100 a share, they would have a market cap (capitalization) of $1 billion. Small cap stocks have historically outperformed large cap stocks but have also been more volatile and riskier investments. One assumption is that small cap stocks have great growth potential. Some of the larger well-know stocks were once small cap stocks. The small amount of capitalization leaves them a lot of room to grow. Bigger companies cannot grow at the same rate percentage rate because they would become too huge to sustain, for example, if Amazon quadrupled in size. On other hand, a small cap company can quadruple its size and still have room to grow. The term penny stock refers to a stock with a stock price under $5.00. On the other hand, market capitalization refers to a stock with a small market capitalization. Small cap stocks may be penny stocks, but they often have prices much higher. Penny stocks may have a large or small capitalization.