Penny Stocks are officially identified as stocks priced below $5. However, a more common definition for a "penny stock" is one that deals below $1 and in numerous situations, even below a cent.

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

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

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

- Be Diversified! Never put all of your eggs in just one basket. Try and invest in at least 5 different penny stock picks at a time. If you have $5,000 to invest, keep $1,000 into each stock. When one is sold, substitute it with an additional hot penny stock.

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

- Whenever looking to buy or sell a stock at the market opening, be patient! If you are looking to purchase a penny stock, notice how a lots of stocks open strong, rise for approximately an hour and a half, then come to dip. Then for the next hour things will start to stabilize. Then after the market has been open for two and a half hours, it will begin to climb again. Use this same information for selling a penny stock investment. In case you missed a selling point when it first opened, watch 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! If you are down 10% to 15% on a penny stock position, it's time to cut your losses and get out. If you are well diversified, you'll have other promising stocks to help you recover your losses.

- Don't think of buying a stock depending on the quantity of shares you can buy! We see so many people buying a $0.50 penny stock pick because they desire to own 2,000 shares. It doesn't matter what the price is, remember you're out to make a percentage on the stock investment.

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