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Penny stocks are very much like normal stocks apart from the fact that they are not traded on the main stock exchanges. Penny stocks are, by definition, stocks that are trading at or below $5 a share Penny Stock Egghead Review. The purpose of trading penny stocks is the same as regular stocks: Try to buy low and then sell higher.

Penny stocks are much more volatile than normal stocks and herein lies their main advantage AND their important disadvantage. Penny stocks can and do double their price in only one day where it could take weeks, months or even years for a regular stock to do the same. For some reason, it is far easier for a stock priced at one cent per share to boost its price to two cents a share than it is for a stock worth thirty dollars per share to double its worth to $60 a share.

What all of this means to the investor is a good news/bad news kind of thing. Bad news first: These stocks can be so volatile that you are able to lose your full investment in less than a single day. It's nothing for a stock worth one cent a share to go to nothing quickly. Regular stocks can also go to nothing but they will take a much longer period doing it, giving the investor an opportunity to cut his or her losses and keep a part of his or her capital.

You can easily be taken out by these stocks if you are not paying close attention with your finger ready on the sell trigger. Penny stocks do not habitually act as you might expect after studying up on the fundamentals of a company. In the world of penny stocks, one frequently sees good corporations going down and bad corporations going up.

The good news? You are able make a sizable percentage increase fast with only a little amount of cash at risk. And, although you can lose the majority or all of your capital quickly, you will not be damaged that much if you have only risked a tiny part of your whole net worth. Admittedly, investing a penny and having two pennies the next day is not going to alter your life that much and so you may be tempted to try to double a much bigger initial investment. Because of the volatility of penny stocks, you should never put in more than you can afford to lose.