About Penny Stock Trading

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Penny stocks trading refers to companies that trade for less than a dollar, but investors must be careful when trading penny stocks because of fraud. Find out how to contact the manager or trader of a specific fund when buying penny stocks with help from a portfolio manager in this free video on penny stocks and investments.

Part of the Video Series: Penny Stocks
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Video Transcript

Hi, this is Roger Groh with Groh Asset Management. Today we're here to talk about Penny Stocks. Those are companies that sell for less than a dollar. How do you trade those types of companies? Well, carefully is the answer. Frequently there, that group has been full of fraud and deceit and problems and as you research it, you will see an awful lot of notations about the Securities and Exchange Commission coming down on businesses or underwriters involve in the Penny Stock area. Why? Well, either the companies have been too small and haven't been able to handle the growth or they just plight. Either or, the SEC has been been heavily involve in that sector. But that's not to say that all Penny Stocks are that way. Frequently larger companies which have gotten into financial trouble sell it very inexpensive prices and you will see them come up as you begin to do screens to identify all companies that sell for less than a dollar. Okay, how to trade them? Well they're really not any different from any other company. However, you will find big spreads between bid and ask typically. So if you're willing to pay eighty cents today on the ask and have it be forty cents thirty seconds later; you can just end your orders and you'll get your shares; but the value of your shares may, may shrink considerably. However, if you use limited orders or you have discussions with the traders, there maybe a way to whittle it. Meaning, the next time somebody comes into that stock where they're looking to exit a position; if a trader knows that you're a potential buyer, maybe they'll call you and tell you that there's a seller and perhaps they'll be willing to work with you. Also in the large mutual funds which deals so much in the Penny Stock area, they may want to do a trade off the board. And if you're very interested in a specific company, it might be worth calling the manager or trader of that specific fund telling them you're willing to be a buyer. And maybe they can do it off the board, a little bit cheaper. Commissions are, maybe two ways. Number one, on a per share basis and then number two, the spread between the bid and the ask. So be careful about that and give very expensive to deal in Penny Stocks. Remember, if you bought it at twenty cents; on the ask and it's only worth ten cents on the bid; yeah it's only a dime, but you just take a fifty percent loss in that stock. Hope that helps. I'm Roger Groh with Groh Asset. Be very careful.

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