Should you buy penny stocks? That's an excellent question. 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. 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. Their low prices mean they have the potential for increases of several hundred percent over a few days. The problem is that for the same reason, there's a big potential for high losses.

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. That means they are more unstable, volatile.

Another thing: Penny stocks are a great source of income for fraudulent individuals. This is due to the stock's less known status. 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 has a name: "Pump and Dump." It profits the fraudulent and results in big losses for the naive investor.

So, their great prices may encourage you to buy penny stocks. 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!