Avoid suspicious companies – Traders who know the signs of a bad penny stock can avoid the risk of losing money. A stock that has previously been suspended from trading by the SEC due to unreliable or inaccurate information may be a bad bet. Other potential red flags of which investors should be aware include high pressure sales methods and large asset listings combined with small revenues. Bad risks may also have unusual loans, a record of past auditing issues, or a large amount of stock in the hands of insiders.