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Should you buy penny stocks? That's an excellent question. Let's look at some of the pros and cons.

In the United States, a penny stock is one that trades for less than $5 per share on any market. In common conversation, however, the term can apply to any low-priced, easily manipulated stock, and it often refers to stocks sold outside one of the three major exchanges (NYSE, NASDAQ, and AMEX).

It's very tempting to get into the stock market by buying penny stocks, seeing as how they're so cheap. Another reason they're attractive is because they could dramatically increase in value in short order. But they also have a huge potential for steep losses for the same exact reason.

If you buy penny stocks, you may find that they are harder to sell than you anticipated. These stocks have fewer investors interested in them, so they are not traded as often as higher-priced, popular stocks.

In addition, if the particular stocks you're looking at are listed on a lesser-known exchange, they may not be subject to the same listing requirements or minimum standards that other stocks are. This makes them less stable.

Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock's less known status. Many investors have been misled by these people through spam emails and internet message boards.

This is how their game works: They get investors to tie up a lot of their money into a stock with little or no potential for growth. When the stock's price rises, they sell off their own shares. This scheme has a name: "Pump and Dump." It profits the fraudulent and results in big losses for the naive investor.

So, their great prices may encourage you to buy penny stocks. However, be aware of the potential pitfalls before making any investment. Know the track record of the companies you're investing in!

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