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 (ie- 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.
For example, 12,343,000 shares of ABC at $0.29 each gives ABC Corp. a market cap of $3,579,470 (12,343,000 shares times $0.29 per share = $3,579,470). That is kind of like saying that the company's total value is 3.5 million dollars.
In some cases, organizations or individuals will treat any company beneath a certain market cap (for example, less than $10 million) as a penny stock.
Interestingly, using option 1 or 3, 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 open in the morning, may not be a penny stock by noon.
In some cases the definition of penny stock is generated by a combination of the above criteria. 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 high risk, high reward investments. It is easy to lose money on a penny stock investment. However, if your shares do begin to move, they can produce hundreds of percentage points of gains, and they often do this in only a short time frame.
Penny stocks are often very volatile, and just as often unpredictable.
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