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Behind the big new craze in penny stocks

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With the broader stock market stuck in a relatively boring trading range, investors are turning to much riskier penny stocks in search of return.

Trading volume at OTC Markets, which handles companies not listed on big platforms like the New York Stock Exchange or the Nasdaq, has jumped 40 percent in 2014 to $23.5 billion a month, according to a report in Friday's Wall Street Journal.

While that's only a fraction of the $1.3 trillion or so that gets traded each month at the NYSE, it still represents a significant change in approach for investors searching for yield and outsized returns that big indexes like the Dow industrials or S&P 500 are not providing.

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"I like things below 3 cents, because of the upside potential, and it limits the downside," Steve Templeton, a 42-year-old day trader, told the Journal.

Some of the companies that have seen sharp volume spikes this year include 2050 Motors and GlowBlox Sciences.

While traders are attracted to the possibility of huge gains in tiny companies, they also are taking big risks.

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"It's the closest you can get to pure gambling," said Clem Chambers, CEO at ADVFN.com, a U.K.-based firm that runs InvestorsHub, a forum for penny stock traders. "It's not all nightmarish companies, but the ones that capture the imagination are the most crazy ones," he told the newspaper.

Read the full Journal post here.

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