Penny stocks can be found outside the normal exchanges that make up the conventional more popular companies. If you are interested in buying these stocks, you must first know where to buy them and how to carry out these transactions.
Where to buy penny stocks?
To buy penny stocks, you must be open to the risk associated with these types of investments. Once you have concluded that these stocks fit within your overall investment strategy, you can look to large exchanges or the OTC and pink sheet market to buy penny stocks and carry out transactions through a broker.
Read on for detailed steps on how to buy penny stocks.
6 Steps To Buying Penny Stocks
Determine the type of penny stocks you want to buy
Penny stocks can be bought either through traditional large exchanges or through the OTC market. OTC stocks are unlisted and so there is no central exchange for the market. Figuring where the stocks trade are is crucial to the next step. Research these stocks and make sure they are right for your investment strategy and fit into your portfolio.
Open your brokerage account accordingly to get started
Full service or discount brokers, if you have determined that you will be purchasing OTC stock, you must find a broker that allows for these types of transactions. All orders of OTC securities must be made through market makers who actually carry inventory of securities rather than just matching orders.
Explore your trading platform to get the most out of it
If it is an online platform, make sure you know how to maximize the tools available to you. Look for a tutorial on the service that can give you the in's and out's of the website. Trading penny stocks may sometimes require quick action emphasizing the importance of knowing how to navigate the system.
Fund your account with at least the minimum deposit
Look out for minimum deposits when opening the account. Make sure that the platform offers a quick and easy way to transfer money into and out of the account. This is critical as penny stocks are time sensitive and require quick action when making a trade.
Place your trades using limit orders
More important for online platforms than full service brokers, limit orders will ensure that your order does not fill higher than anticipated when purchasing your stock. Understanding order types is extremely important when trading stocks. For OTC stocks, you can refer to the Over-the-counter bulletin board (OTCBB) for the stock's bid and ask prices.
Follow your penny stock investments closely
A common practice with larger cap blue-chip stocks is to buy and hold, rarely monitoring them in order to ensure for a long holding period. Once you've purchased your penny stocks on the other hand, they require constant supervision as their prices can swing rather quickly.
The process of purchasing penny stocks can differ from purchasing regular stocks depending on the exchange of which the stocks are trading on. Understanding and perfecting the process of purchasing these stocks is a step in the right direction towards a successful practice. Take Wall Street Survivor's Using Online Resources course to ensure you are using the best trading tools available to make you a better investor.