Penny stocks have become an investing strategy for people looking for quick gains on their short-term investments. Since the stock price per share is so low, it allows investors to buy large blocks of shares at reduced rates, increasing their potential to make higher profits from an investment.

However, penny stocks can be very volatile and unpredictable as the price and liquidity of the stocks are influenced by news, political situations and even market skepticism about a company. The lack of liquidity and higher transaction costs makes them more susceptible to manipulation, making investment decisions rather difficult.

Further, penny stocks are not subject to the same stringent financial and reporting requirements that publically-traded stocks are, and that can leave buyers vulnerable to the potential of fraud or deception. Over the course of a year, a penny stock may increase its value significantly, but it might also crash or disappear overnight. Indeed, it is not uncommon to find companies in which majority of the shares are held by a single person or organization.

There are also number of online brokerages, who treat trading in penny stocks as risky and a money-making scheme, charging higher commission rates and providing limited or no access to such stocks.

Despite such cons, investors may consider penny stocks as a viable option if they have done their research and are ready to accept the risks associated with them. Penny stocks can be ideal for investors looking for high-risk, high-return investments.

It is important for investors to remain diligent when considering penny stocks as part of their portfolio. Since the majority of penny stocks are heavily speckled and are not subject to the same financial reporting requirements as stocks traded in major exchanges, buyers should inquire about the performance and future outlook of the company. Further, they should opt for an experienced and a reliable broker and stay away from “pump and dump” penny stocks, which are stocks that are manipulated to appear much more valuable than they are.

All-in-all, penny stocks offer investors an opportunity to invest in companies with high growth potential at low capital costs and have the chance to potentially reap high returns on their investments. However, due to their volatile and unpredictable nature, investors need to understand both the advantages and the risks of penny stocks before investing in them.