There are some who consider penny stocks to be any stock that trades for pennies or those that trade for under $5, whereas others regard it as any stock trading off of the major market exchanges. Nevertheless, puzzlement can occur as there are some very large companies, based on market capitalization, that trade below $5 per share, whereas there are many very small companies that trade for $5 or more.

The average penny stock is a very small company with highly illiquid and approximate shares. The company will also generally be subject to limited listing requirements along with fewer filing and regulatory standards. Penny stocks are shares that trade from a fraction of a penny to $5.

Tips for New Penny Stock Traders

If you trade smaller blocks of stock, it's important to locate a quality discount brokerage house with low commissions for your penny stock trading, commissions can be costly.

Buy a penny stock after making your own research and due diligence. You should not be persuaded by posting on a message board or in a chat room.

Long term investment is risky as very few of these penny stocks are actually legit companies therefore most will never go up in the long-term. If you are thinking to invest in a penny stock at $.01 and sell when it goes to $1.00? It's hardly the case that a penny stock can make you a lot of money in long term investment.

The new traders should not have high expectations to come quickly and right off the bat. As there comes high pressure to perform with high expectations comes, and as a penny stock trader you don't need to deal with unwanted pressure.

Start trading with small positions. Spread you money around in different stocks to avoid your risk especially in your beginning stages. After being more comfortable trading penny stocks you can increase position size in a specific stock to the point where you're trading two, three, and maybe even one stock with your whole account.

When penny stocks go down, you can make money. If you're up for it you should definitely try it out. If you think a penny stock is going to go down, you short it, and make money when it goes down.