Penny stocks are a type of stocks generally traded at lower prices. They have less market capitalisation, they are most illiquid, and are usually listed on a smaller exchange. These stocks are very unfounded in nature and are known as highly risky because of lack of liquidity, a smaller number of traders. It needs lots of market knowledge and market expertise to gain a good return by trading penny stocks. Many traders take suggestions from financial market experts with their best stock tips , commodity trading tips or much more in order to save investment from huge losses.

How To Buy Penny Stocks
Here are five useful steps to follow before purchasing a penny stock. Here I am providing some important points that evaluate stocks is potential. A trader is investing his money because he would like to get a return on it, right? For this, he should ask himself whether the penny stock he is considering has potential to get a better return or not? An investor should complete a realistic risk-reward analysis for the stock, even if he is only investing a small amount in it.

1. Limit your holdings - Maybe a trader is excited about his favourite penny stock investment, but still, he needs to protect himself from risk. Secure your losses by limiting your position holdings in a stock, it should not more than 2%. Diversification of stocks is a good option, it also makes sense to diversify your penny stock portfolio but it shouldn't exceed 5% to 10% of your portfolio, depending on your risk bearing capabilities.

2. Check liquidity of stock- No matter a trader is doing a successful investment in a penny stock, still, at one point he will need to sell his position. A trader should have enough liquidity and trading volumes so that he can trade in an effective way. Otherwise, you may quit in a situation where there is few purchaser of stock and large bid-ask, in this cases it seems impossible to convert desire profit into reality.

3. Evaluate when to sell a stock – Penny stocks is usually not suitable for the long-term position. It seems very rare that a trader holds a penny stock as a long-term buy-and-hold investment. This sector of trading is built specially for short-term trades, so it is much important to know when to sell and it is when to buy.

4. Always Look for high profitable stocks- A trader should look for better-performing companies, Buy stock in such company that is performing good in the market. Companies set up by experienced managers who have successfully done their job in a previous company. Always look for such companies who are well managed, such stocks are more profitable and capable to provide a good return from the market.

Basically, Penny stocks are considered highly risky, but we can not ignore that some of them have the potential of turning a small investment into a big profit for the traders. Depends on the trader how well he can manage his risk and rewards in the market. Suitable for high-risk tolerance investors. Financial market experts provide profitable strategies and trading tips like forex tips, binary option trading tips and stocks tips that are useful for earning a better profit.

Author's Bio: 

I am working as Associate financial consultant in Epic Research Limited-the leading advisory firm in India.I have good knowledge about stock market, so i used to write articles on the same