Because penny stocks trade infrequently, it may be difficult to sell shares once you’ve bought them. They are not traded on major exchanges (such as NASDAQ or the NYSE), so it is best to buy them without a traditional broker. The speculative nature of penny stocks lends itself to a “do it yourself” approach through an online brokerage service.
Investing in penny stocks should be considered part of a short-term, speculative tactic rather than a longer-term strategy. As in any investment, never contribute more than you are willing to lose. [3] X Research source Understand how “over the counter” stock trading works. Penny stocks are not traded on major exchanges, and are instead traded “over the counter. " This means buyer and seller deal directly with each other rather than through a broker. Instead of trading at a pre-determined price, you will wind up buying penny stock at the lowest “ask” price you can find or selling shares at the highest “bid” price you can find. Ask prices will vary among sellers, so shop around.
You can find financial information on many small companies on sites like Google Finance or Yahoo Finance. For information catered specifically to the over-the-counter penny stock market, use services like the OTC Bulletin Board and the National Quotation Bureau. A good opportunity to buy penny stock occurs when a company makes an initial public offering (IPO). This is a company’s first move into public ownership. Be prepared by reading the company’s prospectus before making an offer.
Don’t rely on unsolicited suggestions. Research a company thoroughly before investing. Be wary of telemarketers, e-mailers, newsletters, and other advertisements touting “hot” stocks or “secret” tips. [5] X Research source
These sites work well for penny stock investing, because they permit constant monitoring of what may prove to be volatile price movements.
Place purchase orders. “Limit” orders are better suited for penny stock trading than “market” orders. Using limit orders will allow you to control the price of your transactions. Using market orders may lead to purchasing stock at inflated prices or selling it too low, because many buyers and sellers will post unrealistic bid or ask prices.
The best way to determine if a stock is solid and worth the investment is to do your research. “Turnaround” companies, which were bankrupt and are going through restructuring, are good potential investments: their shares will be cheap as they restructure, and as they become more successful their stock could be expected to rise.
This type of stock trading will look a lot like gambling: some luck will help. Unlike in a casino, however, the trader won’t know the odds of winning before putting in his money, and of course there is no way to predict luck. If you spend enough time reviewing, researching, and watching your stock, you will start to see patterns and may be able to predict when it’s time to buy or sell. [8] X Research source
