Summary: A banjo should not be played the same way as a guitar. Learn how to hold and play a banjo in this free video lesson from a professional banjo player.
"Now I'm tell you about correct posture while playing your banjo. This is often overlooked by younger banjo players. Most people, especially guitar players that pick up a banjo after playing guitar tend to hold it like this. Like they're playing guitar. But this is not the really correct way to play, because you don't get the same action with your left hand. So what you want to do is actually put it right in your crotch right in front of you. And the position of your right hand is also important. I start with putting my pinkie down right near the bridge. More advanced banjo players can actually put their pinkie and their ring finger down. You're picking with these three fingers. And so you don't use these at all so it's best to keep them licked in one certain place which helps ground your hand. You don't have to look at your hand as much if you're locked in the same place. Some, like, beginner banjo players usually can only put the pinkie down and this finger tends to move along with your other finger. This is OK. It's not going to create too much of a problem."
eHow Article: Banjo Playing Posture