Traditionally, penny stocks were considered any stock under $5.00. In recent years, a more common understanding is any stock under $1.00. These tend to be high risk/high reward type stocks, with the emphasis on high risk. However they tend to attract those looking for high reward. Most people attracted to penny stocks are not sophisticated traders, and they expect or at least hope to make very large amounts of money. "I only need to be right 1 time out of 10 to hit really big," they tell themselves. And it is true that some penny stocks attain very high gains. Of course, most don't.

Ironically, the people who consistently do well with low dollar stocks are more often experienced traders who short the stocks. They are not so easily fooled by press releases, market maker activity and trading patterns. These traders recognize when the run up in a stock price is likely to fall versus when it likely to hold. And they will be ready to strike with their shorting. Most penny stocks are not found on the major exchanges, trading over the counter. There are fewer regulations that the companies have to follow, allowing for questionable practices that are not always obvious if one is not a sophisticated trader. Even if companies are not unethical, there will be less information available from over the counter companies upon which traders can base their decisions.

The odds are stacked against those trying to make big money in these stocks. And most don't. Certainly a few do. But if you want to take the smarter path, seek out experienced shorters. Learn from them and watch the market to see if what they say actually transpires in the market more often than not. And then dip your toe in the water with relatively small amounts of money. If you find success, then you might choose to increase the amounts. After a bit of time, you might find yourself making money with penny stocks.