How To Buy Penny Stocks

You need to know how to buy penny stocks. Don’t worry, we’ve all been there. I’m going to assume you know what a penny stock is, but if you don’t, take a quick look at our homepage for a description.

Penny stocks can be traded on various stock exchanges, including the National Association of Securities Dealers (NASDAQ), AMEX (part of NYSE), New York Stock Exchange (NYSE), Over the Counter (OTC) and Pink Sheets. All of these exchanges have different rules for listings. Your better penny stocks will be listed on NASDAQ, AMEX or the NYSE. After that, the OTC BB.

When you get into the Pink Sheets, it’s really the Wild West because “pinks” don’t conform to stricter Securities and Exchange Commission (SEC) rules like other companies listed on other stock exchanges. We recommend you stay away from penny stocks listed on the Pink Sheets. There are plenty of opportunities elsewhere.

How To Buy Penny Stocks

Actually, buying penny stocks is exactly the same as buying any other type of stock. So if you already know how to do that, you know how to buy penny stocks. If not, don’t worry. I’ll proceed with showing you how to buy penny stocks properly.

Here’s the general checklist for buying penny stocks online.

1. Get capital for penny stocks trading and investing. We recommend you have at least $500. Yes, you can start with less, but it’s slow going.

2. Find a good online penny stocks broker. We don’t recommend looking for a full-service brokerage for penny stock trading. You’ll get hammered with fees. You want a discount brokerage. More specifically, you want a good broker for penny stocks. That link has more information about who to look at choosing.

3. Setup an account with your online penny stocks broker. Some penny stock brokers have minimum deposits and some don’t. Capital aside, just choose the best broker for your penny stocks trading plan.

4. Begin researching to find hot penny stock picks. Always do proper penny stocks research before jumping into bed with anything. Don’t just jump into something because you saw someone saying the best penny stocks to buy are X, Y and Z. Investing in penny stocks is highly rewarding, but caution is needed.

5. Execute penny stock trades once you understand how to buy penny stocks.

That’s the general overview. Now let’s look at a few more specifics about how to actually buy penny stocks.

How To Buy Penny Stocks Example

Okay, you’re all set with your online broker and money is in the account. It’s now time to buy a penny stock.

Each stock has its own symbol. For example, the symbol for Google is GOOG. You need this symbol to buy penny stocks. Your broker’s trading interface will make this very easy, so don’t worry if it sounds confusing.

Once you have the company in mind, the next decision is how many shares of the penny stock you want to buy. For our example, I’m buying 100 shares of a fictional company.

Here’s a key penny stocks trading tip for you. Never do a market order. When you buy and sell penny stocks, you want to do what’s called a limit order.

How To Buy Penny Stocks: Orders

Market order: You’re saying I’d like to buy or sell my penny stock and I’ll take whatever price you want to give me.

Limit order: You’re saying I’m buying or selling my penny stock for $X or better, no less.

As you can see, a limit order gives you more predictibility and command over your trades.

You can also select “All or None.” When you choose that option, you’re saying that unless you can buy or sell all of your desired shares, you don’t want to do the transaction.

Next, you can choose the penny stock order’s duration. For example, you could enter the order for just today at market close or just keep it opened until it’s filled.

Penny stocks always have two prices: bid and ask. The bid price is what people are buying the stock at currently. And the ask price is what people are willing to pay currently. The difference between the two is called “the spread.” Stocks with bad spreads can kill a penny stocks trader in a hurry.

Let’s say you see stock for PSCOMP, Inc (fictional company) with a bid price of $1 and an ask price of $1.10. This means that if you buy the stock right now, you’d pay $1.10 per share. And the spread is 10 cents, so if you instantly sold it back, you’d lose 10 cents per share since people are only willing to pay $1 per share. In order for you to break even (not taking broker fees into account), the stock’s bid price must go up 10 cents to $1.10 (so a 10% increase). See why the bid/ask spread is important?

When you’re just starting out with penny stocks investing and trading, start small to get your feet wet. You’ll make mistakes. It’s part of learning how to buy penny stocks. Just keep at it, read and research.

Now you know how to buy penny stocks.