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The growing allure of penny stocks

As U.S. indexes are testing highs, retail investors are jumping back into the risky world of penny stocks faster than ever.

The Wall Street Journal reports that investors are buying up cheap shares of companies unlisted on major U.S. exchanges "at the fastest clip on record," even eclipsing the heady days of the late 1990s tech boom.

OTC Markets Group, which facilitates trading of stocks not on the Nasdaq or the New York Stock Exchange, has seen the value of its average monthly trading volume rise 40 percent this year compared to last, the Journal reports. This trend demonstrates a renewed interest in risk from individual investors—many of whom were burned by the financial crisis.

spxChrome | iStock | Getty Images

"A lot of these people, who were looking from afar, are coming back," Clem Chambers, CEO of British financial market site ADVFN, told the Journal. "It feels like somebody pulled a switch."

Penny stocks' return to popularity comes amid a general renewed interest by retail investors. TD Ameritrade and E-Trade both saw major increases in daily trading volume, the Journal reports.

Read More U.S. SEC wins injunction against Canadian tied to penny stock scam

Still, the OTC market offers significant risks for any trader: There is much less regulation covering these companies, so fraud may be less easily detected. Also, the oftentimes tiny values of OTC shares mean that small drops can be large percentage losses.

—By CNBC staff

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