How to Invest in Penny Shares & Penny Stocks
The price of an individual share of stock can vary wildly, from under a dollar a share to hundreds, or even thousands, of dollars per share. Stocks that sell for less than $5 are often referred to as penny stocks, and investing in those low priced shares is an interesting way to play the stock market. Many so-called penny stocks trade on a special exchange known as the over-the-counter market, while others still trade on the major indexes like the NYSE and the AMEX.
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Instructions
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Determine what percentage of your portfolio you wish to devote to penny stocks. These low priced stocks generally have a number of issues that have caused the stock to sink so low, and that makes penny stocks very speculative in nature. Keeping your exposure to these stocks low will reduce your risk while still allowing you to make a profit if the stocks rise in value.
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Open a brokerage account if you do not already have one. Log on to your brokerage account and go to the stock screening tools.
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Use the stock screening tools on the brokerage firm's website to select stocks with a price of less than $5. This is the most widely cited definition of a penny stock.
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Learn as much as you can about each penny stock you are considering, including any earnings the company has, current products, products in the pipeline and any legal issues facing the company. You can often access the financial filings and annual reports right from the brokerage company website.
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Go to the trading menu and enter the number of shares you wish to purchase. Confirm the total amount of the trade, including the price of the shares and the cost of the commission, and press "Confirm" to send the order for processing.
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Print out a copy of the trade confirmation and keep it with your tax paperwork. You will need this documentation when you sell the penny stock, hopefully for a handsome profit.
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