How to Invest in Penny Stocks

Common stocks costing under $5 per share are more informally known as penny stocks. Obviously you can't buy anything for a penny any more, even stock, but $5 a share sounds like a good investment. Still, it's risky, because penny stocks are most often sold by new companies needing capital. Read on to learn how to invest in penny stocks.

Difficulty:

Moderately Challenging

Instructions

1. Find out as much as you can about penny stocks. While there have been cases of people earning good money quickly, more often investors lose their money.

2. Contact a broker who specializes in penny stocks. Carefully research a brokerage that specializes in penny stocks, and in particular a broker who tells you that you're getting a sure thing.

3. Subscribe to online subscription services as an alternative to using a broker. Either a broker or an online service should provide you with a list of available penny stocks.

4. Familiarize yourself with the companies offering penny stocks. You want to invest in companies that have good leadership and a potentially successful product.

5. Understand that penny stocks are traded over-the-counter, not on a stock exchange. Brokers receive commissions based on the transaction.

6. Think about investing in a penny stock still listed on Nasdaq. You might determine it's worth the risk after more investigation. If you learn that a stock has been de-listed and is now being traded over-the-counter, chances are that the company is experiencing significant financial trouble.

Tips & Warnings

• Penny stocks should make up less than 10 percent of your investment portfolio.

• According to some experts, up to 70% of investors lose money on penny stocks.