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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. 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. 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. Because these stocks don't have as many investors, they are usually not traded as often as the more popular and pricy 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. That means they are more unstable, volatile.

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 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!