Penny stocks are those stocks which trade at a very low price and have low market cap . They are high-risk securities with small market capitalisation . Before investing in suck stocks the investors has to make sure whether the company is profitable or it has the capability to make profit in the near future. Speculation must be avoided at all cost on penny stocks. One mistake that investors make is that they view penny stock as easily affordable . Investors must analyse about the risk of trading in penny stocks , understand the volatility , check out for scams and invest in right company . One way to avoid scam is to ignore social media conversation regarding penny stocks .Do your research on company’s business and not on the stock price . Make sure that the company has potential to compete with the large players in the industry. Another thing to consider is dilution. Hence it is necessary to find a company with strong share structure . Last but not the least , don’t invest and forget in penny stock !