Buy Penny Stocks
Penny stocks are typically defined as stocks trading under five dollars. If you are interested in purchasing penny stocks you should start by doing some research. Penny stocks are not the same as conventional stocks – the ones you hear bout on CNBC. Traditional penny stocks cannot be purchased on the major exchanges like the NYSE and NASDAQ. The penny stock market is a great market for traders looking for volatility and out-sized gains. The flip-side of those out-sized gains can be crippling losses so all traders need to consider their risk appetite.
If you are interested in researching penny stocks, OtcMarkets.com is a good place to start. OtcMarkets.com has quotes and any available information for companies on the otc exchange. Other sources include yahoo finance, google finance, big charts, and investopedia.
Where to Purchase Penny Stocks
When you are ready to purchase a penny stock you can use online brokers such as Ameritrade, or E-Trade. Online stock brokers are do-it-yourself low cost brokerage firms. An account is necessary to begin trading. It is very simple to navigate the screens and commission prices are always fair and minimal. Before you begin to trade you should understand and use some basic trading strategies to limit your downside. When you enter into a position in the stock you should always be looking for your exit.
Exiting a Position
Penny stocks are known for their volatility. This means rapid prices swings that you will need to prepare for. Some people advocate using trailing stops which is fine if you are in a multi day trade on a given stock, but is not a good idea if you are daytrading a penny stock. When you are trying to flip a stock or are playing a momo(momentum) stock you are going to want keep an eye on it at all times. With fast moving penny stocks if you try to use a trailing stop the price of the stock can and will blow right past it making you lose even more money. So to avoid this you want to use limit orders and we will go into more detail on limit orders below.
Setting limits
Another way to control how much money you are risking is to set a limit order. A limit order specifies a limit on the price that you are willing to pay to purchase a stock. On conventional stocks that are traded on major stock exchanges limit orders are normally set below the market price so that if the stock goes below the current market price the trader can get the stock at the new lower price. With Penny stocks limit orders can be slow to complete because you will sometimes have to wait for sellers to be willing to sell at the price you are willing to buy at, but they do protect you from paying too much. Sometimes you can set a limit slightly higher than the current price to speed up the purchase, for example if you want to purchase a large block of 3000 shares at 2.00 a share you may want to set a limit of 2.10 a share that way you can purchase all of the available shares at 2.00 and complete the order by purchasing the additional shares at 2.10. You would be assured of not paying more than your 2.10 limit unless you choose to raise your bid incrementally to complete your purchase. You can also execute sell orders in which case your stock would not sell below your limit price.
Other Investment Strategies
Another type of order traders use is market orders. NEVER use market orders when trading penny stocks. You may notice on your Level 2 sometimes that shares of a stock are bought or sold way above or below the current ask or bid, this is someone using a market order to execute a trade. Just remember when playing volatile penny stocks you want to use limit orders not market orders.
There are a lot of terms and strategies to learn in the world of trading stocks. If you are interested in trying your hand at trading, penny stocks offer an exciting way to start.
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