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Have you wondered if you should buy penny stocks? It's a good question. Let's look at 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. 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).

Because they're priced so cheaply, penny stocks are a very tempting way to break into the stock market. 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.

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.

On top of that, if the stocks you're looking into are listed on an exchange that isn't well known, they are probably not subject to all the minimum standards and listing requirements that other stocks are held to. This means that they aren't as stable.

Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock's less known status. Through spam emails and internet message boards, many people easily mislead potential investors.

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.

So, their great prices may encourage you to buy penny stocks. But before you invest any kind of money, be aware of all the potential pitfalls. Educate yourself on the track record of any company you want to invest in!