How would you recognize a penny stock? Because there is no official definition for a penny stocks. There are three different criteria that various individuals and organizations use to define penny stocks. What is considered a penny stock really depends on the person with whom you are speaking.

Penny stocks can be defined by:

• Price Per Share: Sometimes any shares that trade under a certain price are considered to be penny stocks. For example, the SEC considers all stocks that trade for less than $5.00 per share to be penny stock. Different individuals and organizations have their own cut-off.

• Market the Stock Trades Upon: In some schools of thought, any shares that trade on a certain market such as the OTC-BB, or the OTC, or the 'Pink Sheets,' or the CDNX are treated as, or considered to be, penny stocks.

• Market Capitalization: Market cap is simply the total trading value of the entire company. The value of each share of a stock, multiplied by the total number of shares outstanding, equals the market cap.

Also a company can have its shares change in price moment by moment, and may drop in or out of the definition of 'penny stock' over time. What may be a "penny stock" when the market opens in the morning, may not be a penny stock by noon.

In some cases the definition of penny stock is generated by a combination. For example, any stock trading on the OTC-BB with a market cap of less than $20 million is considered a penny stock.

Penny stocks are often very unstable, and just as often unpredictable. In most cases, penny stocks are considered to have higher risk and higher potential rewards than most other 'more conventional' investments. Their speculative value can be extreme, and their visibility of information and / or accessibility of operational results is usually very poor.

Few financial professionals venture into the field of penny stocks because they are either unwilling or unable to do the work required to accurately predict what these highly explosive shares may do.