Articles provided by RE-Sterling.com

Have you wondered if you should buy penny stocks? It's a good question. Let's look at 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.

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.

If you buy penny stocks, you may find that they are harder to sell than you anticipated. These stocks have fewer investors interested in them, so they are not traded as often as higher-priced, popular stocks.

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 investors have been misled by these people through spam emails and internet message boards.

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. This scheme has a name: "Pump and Dump." It profits the fraudulent and results in big losses for the naive investor.

The cheap prices might make you inclined to buy penny stocks. But be careful: Keep in mind all the possible pitfalls before you invest any kind of money. Know the track record of the companies you're investing in!