How to Buy Penny Stocks

If you looking to learn how to buy penny stocks, I have put together some articles looking at the pros and cons of penny stocks and advice on choosing a broker that won’t take all of your potential profits with their hidden fees.

Should I invest in Penny Stocks?

This is a decision that only you can make. It would be irresponsible of me to make such a decision for you. However, I can tell you a few things about penny stocks that may help you make your decision easier. If you have any doubts about exactly what penny stocks are. Please read my What Are Penny Stocks? page. There’s also another article on penny stock investing to help you decide.

The Good

I’ll start with the good. Penny stocks are often considerably more volatile than more expensive stocks, this does give the opportunity for higher returns, possibly significantly higher.

Another major plus point with penny stocks is they are cheap to buy, so you don’t need a huge amount of capital to get started. There are many definitions for penny stocks, but the SEC states that a penny stock is any stock priced less than $5.

The Bad

If you didn’t know already, you now know penny stocks are cheap to buy and can earn you a lot of money with them. I mentioned how penny stocks are often much more volatile than more expensive stocks, this of course can work both ways. Whenever there is the potential for a big return, there is always the return for a big loss. Penny stocks can fluctuate massively in a short period of time. If your stock is on the wrong side of the fluctuation, you lose.

Some penny stocks do not have a high number of buyers and sellers, or they are not very liquid. This can result in problems when you want to sell your stock. There may be occasions when your broker is unable to get a quote for your stock. This could leave you unable to sell your stock and if you are able to sell it at a different time, the price could be very different to what you were expecting.

Your Personal Risk Tolerance

Before you decide to buy penny stocks, it’s important that you understand they are often considerably more risky than more expensive stocks. If you are comfortable with the risks and have the funds to invest, then penny stock trading may be ideal for you.

Personally, I do trade penny stocks, I am aware and fully understand the risks. However, due to the high risk, they only make up a small percentage of my overall portfolio.

Finding Penny Stocks

Finding penny stocks can be easy with a good screener. There are many different ones to choose from, but my favorite penny stock screener is revealed here.

Choosing the right broker for trading penny stocks

Choosing the right penny stock broker can seriously make the difference between making money and losing money. Unfortunately, there isn’t a great deal of good choices when it comes to brokers for the penny stock trader.

The reason for this is that most brokers don’t really want you to buy penny stocks with them, they don’t make as much money on us. As a result of this many of them charge extra fees. Keeping trading costs down is essential is we are going to make a profit. Trading penny stocks is risky enough without having the extra hurdle of making enough money to line the pockets of greedy stock brokers!

The best penny stock broker i’ve come across is ETrade. They have the lowest fees and generally I have found trade execution to be very good. You can learn more about penny stock brokers and their fees on my penny stock broker page.

Need some further help? Check out the penny stock tips page.