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

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).

It's very tempting to get into the stock market by buying penny stocks, seeing as how they're so cheap. 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 just might have a tough time selling them them off. 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.

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 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!