A penny stock, also known as a "micro-cap stock", is a publicly-traded stock with a very low price per share, usually under five dollars.They are usually issued by smaller companies.
Step 1: You should be aware of the benefits of buying penny stock.
High-volume purchases of penny shares represent an opportunity for enormous gains.
Step 2: Also be aware of the downside.
If you want to sell your shares, you could have a hard time finding a buyer because they are not very liquid.Cheap stock issuers may suffer from a weak market position and a fragile financial profile, making them risky investments.There is a chance that investors in penny stocks will lose their entire investment.It may be difficult to sell shares of penny stocks once you've bought them.It is best to buy them without a broker because they are not traded on major exchanges.The speculative nature of penny stocks makes it a good idea to do it yourself.
Step 3: Do you know if penny stocks fit your investing strategy?
Small, young companies that issue stock have a chance for very high gains, but also a strong chance of significant losses.Investing in penny stocks should not be considered a long-term strategy.Don't contribute more than you are willing to lose.Understand how stock trading works.Unlike major exchanges, penny stocks are traded over the counter.The buyer and seller are dealing directly with each other.Instead of trading at a pre-determined price, you will end up buying penny stock at the lowest "ask" price you can find, or selling it for the highest possible price.You should shop around for ask prices.
Step 4: Before purchasing a company's stock, you should investigate them.
Investing in small, emerging companies is what buying penny stocks means.It is important to look at the company's financial health before investing.Financial information on small companies can be found on websites like Yahoo Finance.The OTC Bulletin Board and the National Quotation Bureau can provide information for the over-the-counter penny stock market.An IPO is a good time to buy penny stock.This is the company's first move into public ownership.Before making an offer, you should read the company's prospectus.
Step 5: You should be aware of the possibility of fraud in penny stock investing.
A common tactic used by sales people is to buy large amounts of a stagnant company's low-priced stock and then aggressively promote that stock as a good buy.The seller may realize big gains in his holdings if that effort results in a rising price.A buyer should be aware of this tactic called "pump and dump."Large losses can be caused by an inflated stock price.Falling prices can leave a buyer without anything.Don't rely on other people's suggestions.Before investing, you should research the company thoroughly.Beware of telemarketers, e-mailers, newsletters, and other advertisements that claim to have "hot" stocks or "secret" tips.
Step 6: You can open an account with online services.
Buying penny stocks without a live broker means using an online service.You can set up an account with a small deposit on some websites.The sites work well for penny stock investing because they allow constant monitoring of what may prove to be volatile price movements.
Step 7: Purchase and trade
You can learn how to buy and trade penny stocks.Purchase orders should be placed.Limit orders are better suited for penny stock trading.Limit orders can be used to control the price of transactions.Many buyers and sellers will post unrealistic bid or ask prices if you use market orders.
Step 8: Solid stocks are good to look for.
A stock that is offered at a very low price may be called a "pump and dump" stock.A "pump and dump" stock is a fraudulent stock that will not yield any real money for you as an investor.If you do your research, you can determine if a stock is worth the investment."Turnaround" companies, which were bankrupt and are going through restructuring, are good potential investments because their shares will be cheap as they restructure, and they could be expected to rise in value.
Step 9: You should keep an eye on your stock price.
Successful penny-stock traders spend all day in front of their computer, making frequent trades at a moment's notice.Some luck will help this type of stock trading.Unlike in a casino, the trader won't know the odds of winning before he puts his money in.You may be able to predict when it's time to buy or sell if you spend enough time reviewing, researching, and watching your stock.
Step 10: Investing in penny stocks is not a good idea.
Don't put them in your retirement portfolio.It's difficult to accumulate wealth from penny stocks.They are better suited for speculative plays.