By: Carlie Evie

That's a good question... should you buy penny stocks? 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.

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. However, for the exact same reason, they have a huge potential for quick loss.

If you buy penny stocks, you just might have a tough time selling them them off. Because these stocks don't have as many investors, they are usually not traded as often as the more popular and pricy stocks.

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 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.

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. "Pump and Dump" is the name of this infamous scheme. It has emptied the pockets of many a naive investor and lined the wallets of the fraudulent.

The cheap prices might make you inclined to buy penny stocks. But before you invest any kind of money, be aware of all the potential pitfalls.

Source: http://www.articlesnatch.com