Volatile market: Penny stocks can be highly volatile and unpredictable, making it difficult to accurately assess their potential risk.
Limited liquidity: There can be limited liquidity for penny stocks, making it difficult to exit positions.
Lack of transparency: Penny stocks often lack transparency, making it difficult to accurately assess their risk.
Fraud: There is a risk of fraud associated with penny stocks, as some are known to be pumped and dumped schemes.
Lack of oversight: Penny stocks are not regulated by the SEC, meaning there is no oversight to protect investors.