Penny stocks are shares of small companies that typically trade at low prices, often under $5 per share. They are considered high-risk investments due to their low market capitalization and limited liquidity. Investors are attracted to penny stocks because they can offer the potential for significant returns, but they also come with a higher chance of loss. These stocks are often traded on over-the-counter (OTC) markets rather than major exchanges like the New York Stock Exchange or NASDAQ. Because of their volatility and lack of regulation, it's essential for investors to conduct thorough research before investing in penny stocks.