The Canadian stock market lists many low capitalization securities, i.e. "penny stocks,” which are generally acquired and exchanged by individual investors. These securities have not been studied in depth and are thus not very well known. We describe this market and three particular risk forms to which investors are exposed: fraud, return distribution, and total loss. An investor buying such securities randomly or without any particular knowledge, has a5% probability of realizing an annual return of 300% or more and a16% probability of realizing a very good return, between 50% and 300%. In 57% of cases, the risk adjusted return will be negative. Acquisition of very low capitalization is similar to the purchase of lottery tickets. Rare sizeable profits are possible, as are frequent losses. In the long term, investment in low capitalization securities, notably when companies access the TSX Venture Exchange, exposes the investor to the risk of failure of the company. We estimate this failure probability to be more than 50%. Furthermore, the probability that the company will be a success while accessing the TSX is 9%. In the other cases, representing 41% of new listings, the issuer survives without procuring a sufficient return to compensate for the risk and lack of liquidity of the investment."

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