Penny Stocks are practically determined as stocks priced below $5. However, a more common definition for a "penny stock" is one that trades below $1 and in numerous cases, even below a cent.

It is often meant, but isn't just true, that penny stocks are also micro caps with capitalization of less than about $250 million, and is therefore capable of creating huge wealth. Penny stocks are actually found across the full-range of capitalization from micro caps to large cap stocks.

As a group, micro cap penny stocks are typically averted by large funds since prices are very easily affected by sizable buy and sell orders. Also, capitalization is just too small to affect a large fund's bottom line. Also, you will find insider responsibilities involved in buying above 10% of a publicly held company so to avoid this, huge funds usually don't take up penny stocks - not even the micro cap ones.

While the best penny stock market poses a higher degree of risk compared to major stock exchanges that trade large cap stocks, in addition they provide huge potential profit for individual investors with small amounts of capital, if they make wise trading decisions. Here are some tips that can help you profit when trading small cap stocks:

- Be Diversified! Never put all of your eggs in one basket. Attempt to invest in a minimum of five different penny stock picks at a time. If you have $5,000 to invest, put $1,000 into each stock. When one is sold, substitute it with another hot penny stock.

- Never ever fall in love with a stock! Stick to your plan! In case a one of the penny stock picks hits your target price, start using a "Stop Loss". If the stock continues to climb, move your "Stop Loss" with it. When it stops out, go on to the next penny stock. We certainly have more information on our stock terminology page.

- Whenever looking to purchase or sell a stock in the market opening, be patient! If you are looking to buy a penny stock, notice how a lots of stocks open strong, rise for about an hour and a half, then come to dip. Then for the next hour things will begin to stabilize. Then as soon as the market has been open for two and a half hours, it will start to climb again. Use this same information for selling a penny stock investment. In case you missed a selling point when it first opened, wait for that two and a half hour point and watch if the penny stock price starts to rise again.

- Don't ride a penny stock into the dirt! In case you are down 10% to 15% over a penny stock position, it's time to cut your losses and get out. If you are well diversified, you will have other promising stocks to help you recover your losses.

- Don't think of buying a stock based on the quantity of shares you can buy! There are a lot of people buying a $0.50 penny stock pick because they want to own 2,000 shares. It doesn't matter what the price is, remember you're out to make a percentage on your stock investment.

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