An unwanted side to investing in penny stock is how quickly you can lose money fast in a bad investment. Even though the rewards of penny stock investing are far greater than most investments you will find, the risks can be daunting.

If you are like me, you want high returns fast without losing money. I will show you two ways do avoid risk and get high returns, the slow way and the way I use (which I will mention at the bottom of the article).

Here is the long way, but one that works, to greatly reduce, perhaps even eliminate, the risks of penny stocks:

1.Beware Hot Stock Tips: You have most likely received a "hot tip" via spam email at some point or another. The promoter promised you fantastic guaranteed returns on your hot penny stocks investment. They word the email to make it a "once in a lifetime" opportunity to you. The best thing to do is delete the e-mail. Chances are you're being scammed by a "boiler room" scam operation. These shady operators buy up worthless shares at fractions of a penny and then attempt to flip them for a few dollars per share.

2. Trading Penny Stocks in Unregulated Exchanges: Unregulated environments do not have to meet the traditional requirements expected of most exchanged that involve penny stocks. Companies in these situations tend to be of lesser quality. Avoid stocks traded on the OTC or pink sheets.

3.Erratic Trading Activity: You should avoid purchasing penny stock that is trading erratically. You could be stuck with the shares for a long time since it's very hard to find a buyer.

4.Lack Of Reporting By Company: When you invest in a company, you want to know what you're buying. To give you an idea, you need their financial statements in order to properly evaluate the company. If no financial statements are issued, the company might have something to hide.

5.Company Hype: Be careful of companies that constantly issue statements that highlights the latest developments but provides no details on how it helps increase revenue or profits.

You may find all these tips frightening in the fact that it requires a lot of in-depth research to be done on all stocks you are considering purchasing, and you'd be right. However proper research is key to eliminating risk!

For those not accustomed to it, the stock market looks either a rosy picture or the dooms day scenario. In reality, it is a mixture of both. By investing in researched stocks, you can get the money of a life time or if you are not careful, you may lose the money of life time. While not every one can become Warren Buffet in stock market, at least you can avoid losses by avoiding the following 5 tips provided above.

I've been quite successful at the age of 24 using penny stocks to not only pay off my college tuition for the past two years, but also keep me debt free! This has been done through following the advice I outlined on my personal website Pick Top Penny Stocks.

Regardless of the method you use to do your research, just make sure you do research!

Enjoy, and here's to your success!