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Have you wondered if you should buy penny stocks? It's a good question. There are pros and cons, so let's look into them.

First of all, what is a penny stock? In the United States, it's a stock that's worth less than $5 per share, regardless of the 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).

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. The problem is that for the same reason, there's a big potential for high losses.

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. That means they are more unstable, volatile.

Because of their lesser-known status, penny stocks have become a huge area of income for fraudulent individuals. Many of these same people have misled investors through internet message boards and spam emails.

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. "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. Educate yourself on the track record of any company you want to invest in!