By adopting an overall risk avoidance strategy, one can be involved in the penny stock markets without being exposed to risk levels significantly greater than would be present on the traditional large-cap exchanges.
Many investors believe that penny stocks represent one of the riskiest forms of investment.
In certain circumstances this is true. For example, going into that particular market without proper guidance or knowledge may result in capital loss. Some investors will buy a speculative investment and hold on to it with a long term outlook, which can be disastrous. Others may buy shares that are not listed on a regulated exchange and therefore have a great deal of difficulty selling the shares. In all these cases, it is valid to consider penny stocks to be risky investment vehicles.