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

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. 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 may find that they are harder to sell than you anticipated. 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. This makes them less stable.

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.

They get investors to pour huge amounts of money into a stock that has no real potential for growth, and then selling their own shares when the price rises. 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. But before you invest any kind of money, be aware of all the potential pitfalls. Know the track record of the companies you're investing in!