They are sold on the promise of significant potential growth. Very often, companies issuing penny stocks are new to the market. They may not have been in business long enough to establish a proven track record or credible financial history. Another characteristic may be an inexperienced management team. These factors undermine market reception and the ease with which penny stocks can be traded.
Penny stocks are 'priced low' for a reason.
The risks are high Despite their bargain basement price, penny stocks are high risk. Unless you have the financial resources to withstand the loss of your initial investment and target returns, penny stocks are not for you. Penny stocks are extremely vulnerable to manipulation. Promoters intent on misleading or defrauding investors are counting on you not to do your homework. In this situation, a promoter accumulates an inventory of penny stocks.