Penny stocks are an exciting and an inviting investment opportunity. They offer high risks and high rewards, but this is compensated by a low entry cost. Unfortunately, these stocks are not typically traded on either the New York Stock Exchange or the National Association of Securities Dealers. An investor eager to take advantage of the opportunity these stocks offer may wonder how to go about buying in. Before getting to the nuts and bolts of doing so, let us take a moment to specify just what the term “penny stocks” is referring to.
Penny stocks can appear under a variety of other names, including Nano stocks, micro cap stocks and dollar stocks. The key concept to these names is a suggestion of cheapness or low cost. However, apart from what the name implies, these are not stocks that only cost one cent per purchase. No matter what names they appear under, these stocks are all united by a simple, underlying definition: they cost less than $5 per share.
To eliminate any confusion, this article shall refer to the stocks of interest as “penny stocks.” Though they are perhaps not as volatile as futures, penny stocks are notorious for their speedy rises and falls in price. The former is the exciting part, the latter yields all the associated risks.
When playing the stock market game, the most successful investors get as much useful but affordable help as possible. The bigger the game, the more important it is to have a direct intermediary that you can interface with directly. This typically takes the form of a broker, a person you can call or otherwise interact with. Brokers serve as an investor’s proxy, performing the trades as the investor requests. The problem here is that brokers collect their commissions in different ways. Some charge a per transaction fee while others milk the spread, which is the financial term for the difference between the bid price and the ask price. Using a broker has its advantages and disadvantages. In addition to serving as your purchasing proxy, a broker can also offer interesting advice and share their insights. Of course, the down side is that a broker’s services can be costly.
Sometimes the investor wishes to pursue an alternative route to a full service brokerage. This is particularly true in the case of penny stock market investors. Instead of relying upon the services of a broker, there are numerous websites available that can give you a more direct role in your investments. These are known as discount brokerage firms, and they are easy to take advantage of.
First, you need to look at various websites to determine the right fit for you. It is always recommended to start your search with established discount brokerage firms. Different companies will have different policies, but the best discount brokerages will have minimal trading fees. You want to keep your money making money for yourself, not putting it into a website brokerage company’s pockets. Companies such as Zecco, Sogotrade or Scottrade have different requirements, fees and structures. By visiting multiple sites, you can familiarize yourself with the different options they offer. The smart investor’s first fortune should always be a wealth of information. From this foundation, the investor can then make rational decisions about what investments they want, what they need to make those investments happen and what sacrifices they are willing to make to achieve their success.
Once you decide upon the online site, you must sign up for that site. Follow each site’s protocols to the letter. Typically, opening a trading account with one of these discount brokerage firms is an easy thing to do. They streamline the process because they want you to use their services. Without your commissions they would not be able to turn a profit.
After you have a trading account, you will then need to supply it with funds that can be used for your investments. This is a case which proves the old adage about needing money to make money. Funds can be added to your account in a variety of ways, including the use of a check, a bank-to-bank money transfer or a wire transfer. You should always remain aware of any minimum requirements established by the individual sites, so you can start trading as quickly as possible and with a minimum of fuss. You should also be aware of your banking institution’s policies about transfers, if you use them directly. This will prevent unpleasant surprises, such as lengthy wait periods between an initialized monetary exchange and the actual transfer.
Once you have an account, the penny stock market is now open to you. You can log in at whim and trade as often you like and your resources will allow. However, buying and selling penny stocks is as much an art as it is a skill. Understanding the proper times to invest and to get out of those investments before taking too big a loss requires rigorous attention and a different skill set than standard stock trading.
Again, the acquisition of knowledge is vital to success. Forums can prove to be fruitful resources, and they should not be undervalued. Many discount brokerage firms have forums that are open to their customers. This is the ideal place to trade information with other like-minded men and women. All of the participants have investment accounts and therefore an invested interest in success. A forum populated with these sorts of individuals is the best place to further refine your business acumen.
When you leave a full service brokerage behind, you will be putting the full work load on yourself. Experience has shown these brokers the ins and outs that investors might not be familiar with. This shortfall can be overcome through trial and error, but such experience can prove quite expensive. An alternative is to compensate for the lack of experience by reading the most up to date sites and subscribing to newsletters like Penny Stocks 1-2-3. You could also become a part of a community that allows individuals to pool their resources and to grow and develop together. Be wary of forum posters who are speaking from an overdeveloped sense of competition.
One can never overstate the importance of research. It is important if you’re deciding between striking it out on your own or trying out a broker. It is even more important when deciding what penny stocks to buy. It is vital when debating when to sell those stocks. Understanding the company, its power structure and similar basic information can prove to be the difference between being a successful penny stock trader and a penny stock trader who suffers extravagant losses. Happy investing!