Penny stocks are companies with low market capitalisations and often millions,even billions ,of shares issued giving share prices very low values that attract charlatans ( who fleece gullible fools ) and novices ( who believe the shares will one day fly ). Their shares often have large spreads requiring enormous rises to break even. Illiquidity ( low volumes ) due to infrequent trades and usually one broker covering the stock due to complete disinterset of major brokers.

Wise experienced investors may invest some profits, but never capital , in companies they have researched thoroughly.

Novice investors always assume that price of 0.01 is cheaper than 100. Understanding fundamentals will teach why it is not.

In North America by industry standards Penny stocks are those stocks that sell for less than $5 a share.

One of the reasons for the $5 cut off is that penny stocks can not be used for margin, they have no loan value therefore the are worth the same - niothing.

When you invest/trade in penny stock you should never put up more than you can afford to loose and you should assume you will loose it all. Unlike regular securities, penny stocks do not let you use risk cutting procedures (options and/or stop orders) since most are not traded in a regulated market place. Since there no requirement on market makers in the OTC Market it may be difficult to find a buyer when selling is required

(thing to note about what "derek" says

they are stocks in small companies and are only worth pence and there aint many shares around, not stocks in large companies that COST pence, but the company is huge and there are LOADS of shares avaialble

They are stocks that are worth only pennies per share. These stocks usually ride on trends and hype vs real numbers and quarterly reports. Don't waste your time, they are very unpredictable

They are stocks that are bought by people that think the lottery is stupid.

Penny stocks separate money from morons.

Watch the Wolf of Wall Street and take copious notes.