Sometimes brokers don&#x27;t allow you to margin (borrow against or sell short) stocks below $5.<p>Sometimes funds have covenants on not buying stocks below $5 because they are considered penny stocks and funds want to claim they focus on quality.<p>Surprisingly, couldn&#x27;t immediately find a good academic research paper on behavior of low-priced stocks. A priori -<p>- very expensive stocks might be a little cheaper than they otherwise would be, high cost makes them harder to buy for individuals and low cost funds.<p>(e.g. if Berkshire Hathaway stock is $200,000, an individual with a $100,000 portfolio can&#x27;t buy it, and even a pretty big portfolio can&#x27;t fine-tune exposure with a lot of granularity. Hence, some enterprising fellows started funds that would just own Berkshire and sell shares in smaller increments, and Buffett got annoyed at that and launched Berkshire B, which sells for $146).<p>- very low priced stocks might be more volatile and show interesting behavior at certain thresholds, penny stocks below $1 might be overpriced since it&#x27;s a hotbed of speculation, stocks that cross $5 might experience some excess selling so they might be underpriced, on the other hand they might experience some short covering as they become unmarginable for some.<p>But anyway, companies usually aim for a stock price in the $10-100 order of magnitude because that&#x27;s the area where even relatively small investors wouldn&#x27;t have a problem fine tuning their exposure.<p>Price &lt; $5 is usually an indication it&#x27;s well off its high.