The difference between penny stocks and blue-chip and mid- cap stocks is important to understand before you invest. Whereas the market performance or normal mid to large-cap
stocks is driven primarily by fundamentals, penny stock performance can be much more impressible to investor speculation. A company's market capitalization (cap) derives from its stock price multiplied by the shares outstanding. This number is therefore the sum dollar value of all of the company's shares at that time. So a penny stock has fewer shareholders than a mid-cap stock and trades on a far smaller volume per day. This is why penny stocks are so speculative. Any sudden change in demand or supply for the stock will be felt quickly throughout the entire framework. As earlier stated, this can be good (less people to share the profit with), or bad (less people to shoulder the loss). Penny stocks are much more volatile than mid or large cap stocks and this is why many investors regard them as a gamble.