After giving a definition of penny stocks, and then showing some of their attractive aspects, it is now time to look at some of the drawbacks to trading in penny stocks.

The biggest drawback to investing in penny stocks, is the risk involved. The first and most obvious risk is that the companies that are invested in through penny stocks are not usually as well established as other companies. Because they are not as well established, there is more risk that the company could fall apart and any money invested would be lost.

There are other aspects of this risk as well. One issue that can arise with penny stocks is that because they are not as large of companies and don’t have as many shares, they have less attention among investors. This lack of volume in the trading of these stocks causes a problem that when you want to sell your shares, there may not be anybody who wants to buy.

Another drawback to penny stocks is that it may be difficult to accurately price a share of a penny stock, because these stocks are not generally traded on any of the major exchanges and have such low volumes. It has been said that if you invest in penny stocks, you should be prepared to lose the entire investment.