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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?

In the United States, a penny stock is one that trades for less than $5 per share on any 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. However, for the exact same reason, they have a huge potential for quick loss.

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

In addition, if the particular stocks you're looking at are listed on a lesser-known exchange, they may not be subject to the same listing requirements or minimum standards that other stocks are. 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. 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.

You might be tempted to buy penny stocks for their great prices. But be careful: Keep in mind all the possible pitfalls before you invest any kind of money. Do your research and know who you're dealing with!