Investing in penny stocks provides traders with an opportunity to increase their profits, but also provides equal opportunities for exchange of losing their capital quickly. These 5 tips will help you reduce the risk of a vehicle more risky investment.

1. Penny Stocks are a penny for a reason.
While we all dream of investing in the next Microsoft or the next Home Depot, the truth is, the probability ‘of finding you that once in a decade of success are slim. These businesses are starting and bought a box because it was cheaper than an IPO, or who simply do not have a business plan sufficient to justify the investment banker the money for an IPO. This does not make them a bad investment, but you must be realistic about the type of companies that are investing in.

2nd The volume of trade
Look for a high volume of shares being traded. Looking at the average of the volume can be misleading. If ABC trades 1 million shares today, and not trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. The number of transactions per day. E’1 insider to buy or sell? Liquidity should be the first thing to watch. If there is no volume, you will end up holding “dead money”, where the only way of sale of shares is to dump a bid, which will put more selling pressure, with a price even more sell low.

Bill Gates is super rich but his once high-flying software company is in doldrums since mid-2002 after the fall of the level of $ 35. The problem with Microsoft (MSFT) has been its inability to grow both in terms of revenues and profits superlative rates the company once enjoyed.

All companies of the size of Microsoft, with a market capitalization of $ 242 billion, growth will be a problem because of its size. But this does not mean the stock is dead. Far from it, Microsoft remains a viable long-term, software companies and is cash rich with $ 34 billion, or $ 3.28 per share in cash. This gives the stock plenty of financial flexibility to acquire or develop technologies for growth. Microsoft has just announced that it spent $ 1.1 billion in R & D units in the MSN Internet FY07. And according to the Wall Street Journal, Microsoft is exploring the possibility of taking a stake in Internet media company Yahoo (YHOO) to take on Internet advertising Behemoth Google (GOOG).

Blockbuster (BBI) is a perfect example of what can go wrong when you misunderstood industry trends and then realizing it, trying desperately to catch up. In the period from 2001 to late 2002, Blockbuster is the leader in video rental. Its shares were trading at about $ 30 a share and its market cap was about $ 5.75 billion.

But there was a trend towards the development of rental movies via the Internet. Blockbuster has failed to recognize the growing importance of Internet video rental, a bad miscalculation on his part. The shares have fallen steadily over the current $ 3.80 to $ 4.20 channel. Once a big hat, Blockbuster is now a small-cap and is struggling to regain a sense of direction. The company entered into the Internet DVD rental, but has a lot of recovering to do.

Basically, Blockbuster has lost money over the last three straight quarters and struggling to grow its revenues, which are expected to increase just 1.1% in the 2006 budget. His five-year estimated earnings growth rate is a mere 2.5% per year, which is pitiful.