Penny stock trading is always associated with risks and that is why if you are contemplating trading with penny stocks, you need to evaluate the risk associated with it. This is ardently required to evade them and continue trading in as risk free way as possible.

1) Firstly, you need to know all the risk tolerance that you have. Before you opt to put your stakes on a particular stock or a set of stocks, you need to know the amount of risk associated with the stocks and against that, you need to gauge the amount of risk that the stock(s) carry with them and whether you have the cushion to withstand that risk and of course the amount of risk you can afford to take from the financial point of view.

2) You need to do a thorough investigation about the company that owns the stocks. You need to study the financial condition of the company, its future plans of business, its performance in the recent past and the implications they have had on the behavior of the stocks. It is not that easy to find all these information in details as you are dealing with these stocks. They do not always have all the required information unlike the blue chipped and other conventional stocks. Still, it is highly imperative that you know all the details in a thorough way. This will make decision making easy for you and you will be able to gauge or estimate the risk factor more efficiently.

3) Know the broker you are hiring in a proper way before you actually appoint the person. Remember, these stocks are never traded through the official markets unlike the conventional stocks. They are traded through the brokers and hence they hold the key that makes the difference between losing or winning at the end of the day. See if your broker has any vested interest in a particular stock and hence he is coaxing to opt for that. Never bank on these brokers for in majority of cases they have an ownership of these stocks.

Hence, they will lure you to purchase them to increase the price. Then afterwards they will go for a selling spree that will cause the price to plummet down. Hence, beware of this false inflation, which makes trading ever riskier.

4) Opt for diversification as this will reduce the risk to a large extent. It is better to purchase three or even more stocks and spend an amount that you would have initially invested on a single company. Thus, even if one company goes for a plunge you can compensate the loss with the other companies.

5) It is better to talk to a professional financial advisor. He will provide you all the information on investment and the type of stock to invest on. If you are just starting with penny stock trading, taking help of these financial advisors is a must as they will guide you in a proper way.