How to Purchase a Penny Stock

Penny stocks are a very risky but potentially profitable investment possibility. Evaluate them carefully before you buy.

Instructions

1. In the U.S an penny stock is a stock that trades below $5.00 a share. Also it should have a low trade volume. Otherwise General Motors was recently a penny stock when it was close to $3.00 a share after seeing highs over $50.00. Because penny stocks are thinly traded some large brokerage houses do not deal in them. Find a brokerage that handles the trade of OTC or Over the Counter stocks, also know as "pink sheet" stocks.

2. A penny stock account is no different than any other stock account. Trades can generally be done with an account you already have. If you plan on setting up an account online or with a local stockbroker one thing to remember is penny stocks are often bought and sold in large blocks because of the low price per share. If your stockbroker charges a fee per share traded vs a flat fee to make a single trade you will need to evaluate the cost of buying and selling at the level you want to.

3. Stock trading in penny stocks has a high risk. OTC stocks are less regulated than big board listed stocks and are more easily manipulated by fraud or rumor. If large firms are starting to be interested and buy a certain stock then it may be a sign of a good company. If the volume or trading goes up it may mean people close to the company are trading on a soon to happen development within the company. Penny stocks are volatile. They can go up by a huge percentage overnight or the company can fold and they are worth zero before you can react.

4. My personal advice for penny stock trading is unless you have it to lose be very cautious. People can more easily manipulate prices. Some penny stock company fortunes are designed to be made by bailing out when the stock is high, not on the company product or service or potential. They are designed for insiders to trade the stock and move on. I try to only buy penny stocks where I have a personal knowledge of the company and what they do. I have bought shares in the past where I knew employees or executives in a local firm and could understand what the company did and where they hoped to go. Even though risky many huge companies were penny stocks early in their history and fortunes have been made in them. The risks are large, the upside can be huge as well.