Where to Buy Penny Stocks
Before investing in penny stocks you need to decide how much money you are willing to risk. The best way to enter into the world of trading stocks is to have an exit strategy in place – either to lock in profits or to minimize losses. Using limit orders instead of market orders and having a set % you are willing to lose can lessen risk when investing in the often-times volatile penny stocks market.
The internet is a great place to research potential stocks but the old rule always applies – do not believe everything you read on the internet. Finding reliable sources of information when trading penny stocks is a must. Recommendations from trusted sources such as Barron’s or Forbes can help validate a different source. Also word of mouth from people you know and trust can be a good way to go. Forbes reviews several small caps and low price stock investment sites and the reviews are available on their website. One thing to look for is an honest site that not only touts its successes but also takes an honest look at their losses. Beware of investment sites that own positions on the stocks that they recommend.
Research Stocks Before Purchasing
You may also want to take a look at otcmarkets.com before buying shares. Look at the 52-week highs and 52 week lows for potential stocks before buying. Pay attention to the price range the stock is trading in before you buy. If it is near its high you may want to reconsider the timing of your purchase – or at least check the volume pattern. Looking at the 52 week high and low of a stock will give you a good grasp of the trading range for that particular stock. Also take the time to investigate the company’s background and financials. You may have to hunt a bit to find this info since penny stock companies do not have to file a report with the SEC.
Investing With a Broker
If you are interested in investing in penny stocks you probably will not be using a full service broker. Penny stocks are usually short term trades, the price that a full service broker would charge for their services would not make the return on your investment worth your time or money. For this reason most people who trade OTC or penny stocks chose to go the do-it-yourself route and use online brokers. On-line brokerage companies such as E-Trade and Scottrade made their name in this market. Traditional brokerage firms have gotten in on the e-broker action and many have branches that offer less expensive do-it-yourself services such as Merrill Lynch Direct, but usually at a higher price than traditional on-line brokers. One thing to look at when selecting your broker is commission. Make sure your commission rates are competitive. Be careful to ensure your commission is a flat rate vs per share. While per share is great if you are trading Google – not so much if you are trading stock that is priced at half a penny.
Choose a reliable on-line broker.
Make sure your online broker has a backup system in the event their website goes down. You should be able to call or email them and get an immediate response. Penny stocks take volatility to an extreme, so speed of trading is vital. Customer service at your brokerage is also important.
Once you decide on a broker you will need to set up an account. The sign up process is usually pretty simple and should take only a few minutes to complete. You will also have to add sufficient funds to your account to purchase the stocks you are interested in buying. Customer service at your brokerage is also important.
How to Make Your First Penny Stock investment
Over the years penny stocks have gotten a bad reputation but there are reputable companies that trade in the penny stock markets. Companies like Dell, Microsoft and PETsMART all started out as penny stocks. You may also want to spend a period of time paper trading to get accustomed to the process at no risk. Paper trading simply means follow your picks on paper and chart your successes and failures for a period of time before you invest actual money. Never invest more than you can afford and remember to do your research, if done properly you should see your investments grow.
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