By TheStreet Staff What Are Penny Stocks (and Why Are They Called That)? Penny stocks are the stocks of small, public companies with low prices and low trading volume, most of which trade on over-the-counter (OTC) markets instead of on major exchanges like the NYSE or the Nasdaq. According to the SEC, penny stocks are those that trade for less than $5 per share, although the term used to refer only to stocks that traded below $1 per share, hence the reference to pennies. Because of their low trading volume and relative obscurity, penny stocks are characterized by high bid-ask spreads. Unlike m…