No investment is without risk, and no investment comes with a guarantee. Penny stocks (stocks with share prices under $1) are considered a greater risk than big board stocks. However, choosing the right one can yield far greater percentages for a considerably lower initial investment.

Penny stocks are considered riskier than other stocks for several reasons. Most penny stocks trade on the Pink Sheets. Pink Sheet stocks are not required to file extensive financial reports with the Securities and Exchange Commission (SEC), which in turn sometimes attracts unethical business people to set up fraudulent companies. Due to these occurrences, penny stocks have a bad reputation. Penny stocks also carry the risk of being manipulated by market makers, the company, and “pump and dump” schemes. The minimal regulation of Pink Sheet stocks allows for the exploitation of investors and legitimate companies through various manipulation tactics. Additional information can be found on the SEC Web site.

Even with the risk involved, penny stocks can be a good investment if research shows that the company has a real business and has a viable product or service to sell. The rewards can often outweigh the risk because the initial investment is small. As with any stock, an investor should never invest more than he can afford to lose.