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Should you buy penny stocks? That's an excellent question. Why don't we weigh some of the pros and cons?

A penny stock in the United States is a stock in any market that you can trade for less than $5 per share. On the other hand, the term can also apply to any lower priced and easily manipulated stock. It will often refer to a stock sold outside NYSE, NASDAQ, and MEX, the three major stock exchanges.

Because they're priced so cheaply, penny stocks are a very tempting way to break into the stock market. They have the potential to increase in value by over several hundred percent in a short time thanks to their low prices. But they also have a huge potential for steep losses for the same exact reason.

After you buy penny stocks, you may find yourself stuck with them. They can be hard to sell. These stocks are not traded nearly as often as the more popular and higher-priced stocks. They have fewer investors.

You're taking a risk when you invest in these kinds of stocks, because if you are looking into a less known exchange, the stocks may not be subject to the same standards and requirements that other stocks are. That means they are more unstable, volatile.

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.

What they do is they encourage investors to dump huge amounts of cash into a stock that has no growth potential, then bailing out and selling their own shares as soon as the prices rise. This scheme, called a "Pump and Dump" results in huge profits for the fraudulent, and huge losses for the naive.

The cheap prices might make you inclined to buy penny stocks. However, be aware of the potential pitfalls before making any investment. Educate yourself on the track record of any company you want to invest in!