The SEC defines a penny stock as a security that is low priced and speculative that is traded in places such as the OTCBB and Pink Sheets. Its not so important if a stock is traded on a major exchange or not since what really makes a penny stock what it is, is the price and not necessarily the exchange which it is traded on. Its anybody's understanding what closely is a penny stock since there is no usual figure. Its generally accepted that its anything trading under a dollar. Go figure right. The biggest money to be made in these stocks is in combination with any news released about the stock since penny stocks are quite sensitive. Because they are so sensitive, small investors have the upgrading.penny stock market.
There is a right way and a wide of the mark way to play these cheap stocks. The thing to keep in mind is that any movement in the stock in general is enlarged exponentially in penny stocks. So if the market goes up then penny stocks go up even more. If the market is down then penny stocks are way down. This is a oversimplification of course but an accurate one. Trading of penny stocks is unfair by the market demand in the OTC rather than the customary stock exchange processes.