Michael Burnbaum : Penny Stocks are any stock that trades below $5 per share
Penny Stocks are any stock that trades below $5 per share. Most financial advisors and long-term investors tend to avoid them completely because of the extremely high risk that comes with owning them. They generally tend to fluctuate wildly in price, and although some report spectacular gains in a matter of a few days [or even hours], those who invest in them are generally surprised when they disappear altogether.
Generally, if a stock is trading that low, it is danger of losing its listing with an exchange. When this happens, a company is normally either in very bad financial shape, or on the brink of bankruptcy. Smart investors opt to avoid these.
The pink sheets refer to a market for stocks that are very, very rarely traded. Fluctuations in price can be extreme and sometimes, it can be impossible to buy or sell shares. New investors should not pink sheets under any condition.
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