How To Buy Penny Stocks
Now that you learned how to invest in penny stocks, let us sail to more dangerous waters by examining how to buy penny stocks. Investing in penny stocks is both riskier and more profitable than trading large-cap stocks.
Understand The Risks
Some view buying penny stocks as gambling, and for good reasons.
First, many of them are unestablished small companies not openly traded on the stock exchange, so they are not subject to the strict regulations that traditional stocks must conform to. Second, the lack of trading volume makes them difficult to sell for a profit. And third, they are the main target of scammers.
Then again, not all penny stocks are like that. There are solid ones with large upside potential that are traded on major exchanges, like AMEX or NASDAQ. You have to learn how to find the needle in the haystack. To put it differently, you have to
How To Buy Penny StocksDo Your Research
Penny stocks are high-risk-high-reward instruments. Before you invest in penny stocks, examine the business side of the companies. While it is hard to find reliable information on these small, emerging organizations, it is still crucial to find out everything you can about their reputation, their products and business practices. Information is not only good for finding true gems, but it is also necessary to avoid bad trades. Use online services like Yahoo! Finance and Google Finance.
Penny stock investing will expose you to fraud, if you don’t do your homework. Always be on a lookout for various pump-and-dump tactics, where cheaters drive up the prices by purchasing a large volume of a specific penny stock, then promoting them wildly, only to initiate massive sell-offs after others began noticing and buying them.
After you found decent penny stocks to buy, the next step is to execute the trade. For this, you will need to take a look at penny stock brokers.
Find The Best Brokerage Account
You have to consider the following: account minimum, fees, costs per trade, trading tools (historic prices, charts, research interfaces etc.), trading restrictions, minimum buy sizes, and so on.
Make sure to compare several online brokers before you reach your decision. Low cost sites like TD Ameritrade, Interactive Brokers, or E*TRADE will let you start an account with relatively small deposit. I recommend these for investing in penny stocks.