: Be wary of aggressive promotional "tips" found via email or social media. These are often used to artificially inflate a stock's price so that early investors can sell their shares at a profit before the price crashes.

: Many market participants suggest using limit orders rather than market orders. A limit order sets the maximum price one is willing to pay. Because penny stocks can have wide "bid-ask spreads" (the difference between the buy and sell price), a market order could result in a purchase price significantly higher than the last quoted price. 4. Recognize the Risks

When purchasing penny stocks, the method of execution is a critical factor in managing costs.

Information regarding penny stock companies can be difficult to find, making independent research essential. Unlike larger companies, these smaller entities may not be required to file regular reports with the SEC.

: Review the commission and fee schedule, as some brokers charge per-share fees that can become significant when buying large quantities of low-priced stocks. 2. Perform Thorough Research