When you think of penny stocks one of the first things that comes to mind is that they are cheap so you don’t have much risk if you are investing very little money to get started. But there are other factors that can make them riskier than other stocks and if you are aware of them and a savvy investor you can limit some of that risk.

Although you really don’t have to invest a lot, if the company has bad news or goes bankrupt right in the middle of your investment you can lose everything.

You must do your due diligence when trading any stock, whether you are investing a little or a lot. Do your research and look very carefully at the company’s financial history and their expectations for future earnings before you buy them.

Be mindful that Brokerage firms that help penny stock investors trade are required to disclose the risks and tell you exactly what the risks are before you trade these types of stocks.

Penny stocks are not traded as often, the volume is low so you could get stuck holding a worthless penny stock if it goes south. Because they are not traded often the prices you are seeing could be inaccurate.

You also have to wade through all the hype from penny stock promoters. Don’t fall for the notices in your email inbox that promise this or that penny stock will get you a fast fortune. Those are usually pump and dump promoters and you should run away from them as fast as you can.

These pump and dump scam artists will sometimes buy up a ton of penny stocks to inflate the price and make it look like a good thing. They offer them to traders and investors at a higher value than what they are really worth.

It is also true that some really crooked brokers will charge much more for their commissions than they should. Make sure you are not being overcharged. Because not only can you lose money on the trade but you can lose more than you should on the commission.

Most brokerage firms operate on a fair basis you just have to be careful that you have a broker who has your interests in mind.

Another way you can minimize your risk is to subscribe to a reputable penny stock newsletter. These newsletters do the research for you. They pick penny stocks with good potential and give you buy and sell signals so you are not paying too much and you get out with a decent profit, sometimes even a profit that borders on a fortune.