Thursday, January 16, 2020 8:34:30 AM
Stocks that trade below $5 are considered so risky that institutional investors, including pensions and mutual funds, aren't allowed to buy penny stocks and can even be required to sell securities that fall below the $5 mark. This double-edged sword cuts both ways, however, when an issue rises above $5 and institutions are allowed to buy.
This forms the basis of the $5 threshold trading strategy.
When stocks cross the $5 barrier in a bearish manner and institutions sell, the market is flooded with shares and the price is driven down. When a stock rises over that $5 threshold, institutions and hedge funds can, and sometimes do, load up on shares which in turn drives the price higher.
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