Investing 101: Trading Penny Stocks

Every new investor joining a given market for the first time is constantly faced with a few challenges. It’s necessary to understand the operations of a new market before you open your mind on a full investment.

Penny stocks are types of stocks traded on the actual market because of their prices. A regular penny stock may cost as little as less than a dollar. These kinds of stocks are absent on major stock markets such as NYSE, AMEX, NASDAQ, among others.

Inexperienced investors or investors joining the stocks exchange industry are mostly associated with penny stocks. This is because such stocks act as pathways to understanding market behavior and the industry as a whole.

A registered and well-informed broker can assist these newbies with penny stocks; however, unless the investor is looking to use penny stocks as a stepping stone to the big fish, there may be few interested stock brokers to take on such a portfolio.

The biggest challenge associated with penny stocks are the profit margins. Unless you are willing to put up large amounts against a particular trade, you may find yourself dealing with very small profit margins.

Trading penny stocks are easier and only takes a few trials for beginners to grow into experts. In fact, after learning the basics, it will be easier to transition to the general market and start trading these stocks over the phone or through the internet without the assistance of a stock broker.

Penny Stocks Are High Risk

According to expert reviews, penny stocks have been listed among the most high-risk investments in the 21st century. Evidence shows that they can easily lose value, which would take years to recover. Incidentally, if all goes well, penny stocks are also considered great investment strategies especially when value doubles or triples.

Penny stocks are mostly associated with startups and companies that are less secure. For this reason, they lack proper backing and are vulnerable to liquidation.

Investors of penny stocks mostly trade these stocks through exchange sites. Although these stocks are not bought or sold through renowned stock exchange markets, it doesn’t mean that big players in the industry have no ways to provide accessibility to interested investors. NASDAQ is a renowned giant that deals with penny stocks through their online stock exchange site.

Unlike regular stocks, which are bought or sold as a single unit price, the price of penny stocks is usually estimated based on market performance within that day. When you are buying or selling penny stocks, you focus on the asking price at that point in time.

By taking the difference between the actual price also known as the bid, and the selling price also known as the ask, by the trader, the end result also known as the spread, will showcase the profit margin at which your penny stocks investments would be worth.

Penny stocks are so flexible than common stocks because of the many channels in which they can be traded. Brokers are mostly utilized when an investor wishes to purchase his or her stocks in sets of 100.

Market makers are particularly associated with the selling of penny stocks. They use a technique that could be linked to selling commodities in the auction. Depending on your ability to match each set of 100 stocks on price margins, you can always back out if things get tougher.

Penny Stocks For The Novice

How do penny stocks work? Imagine buying a stock at only a penny and within hours, the same stock trades at 2 cents. Generally, you will have increased your profits by two times the initial cost of the stock and this is how penny stocks work.

Investors who like to gamble by taking risks on lower investments for high profits have found it worth to invest in penny stocks. On that matter, Securities and Exchange Commission has continuously reminded investors that trading on penny stocks requires people with high speculative skills. The securities traded keep changing and thus the need to speculate on the next price change.

Unlike the commonly traded stocks, penny stocks lack guarantees hence why investors are urged to do thorough research on requested trades before executing.

While a few brokers want to be associated with penny stocks, it’s easier to get around and connect with a professional penny stock broker who will handle your portfolio with care. Firms that deal with these stocks may also request certain disclosures such as the investor’s financial planner among other tax related advisors.

The commissions that are incurred by the investor to the broker on penny stocks should not be more than 2.5%. This is because the overall profits can be less hence one of the biggest challenges associated with trading penny stocks. When the trade is higher, and the investor accumulates reasonable profits, the broker may come forward and request for a higher percentage. In most cases, the investor will award commission percentages based on profits earnings.

Funding A Penny Stock Account

A penny stock account is funded by the investor based on the amount of money he or she wishes to invest.

A given stock brokerage firm may request a given minimum based on its policies. For this reason, before you decide on a particularly given account, it’s recommended that you seek advice from a representative with diverse knowledge on penny stocks.

Due to fluctuating prices over and over on penny stocks, few investors afford to take the risk on them. On many cases, beginners in the stocks market are known to take chances with penny stocks.

The low prices are the driving force behind these investors choosing penny stocks as primary market entries. Another added advantage with these stocks is that you are also able to evade high commissions on brokerage fees that experienced brokers would be requesting.

Although you can trade with less assistance from a brokerage firm, you still need to open an account with one. A few factors dictate the qualities of a brokerage firm suitable for trading penny stocks. For example, the minimum fees and deposits, charges, the speed of execution and reliable customer service.

Many online stock brokerage firms will contain guides that will help you begin your first trade on penny stocks. But before this, a proper research will, in fact, help you select a proper stockbroker that will play a key role in helping you access commendable profits from your first trade.

How To Choose A Broker For Penny Stocks

Accessing stocks costing less than a dollar is now easy with penny stocks. These types of stocks are readily available for purchase from small to medium size companies. National Stock

Exchange Companies have also found a way to making these stocks accessible to investors who would rather invest on them instead of the regular types. The online trading platforms have been designed allowing investors to buy or sell penny stocks right from the online site.

Choosing a reliable broker for penny stocks can be quite a hassle, but if you know what and where to look, it can be just as easy. This review acts as a guide to helping you with clues on what to look for when finding a good penny stocks broker.

  • Past experience and qualification: Penny stocks are high-risk investment procedures that beginners and existing investors should consider. The volatility associated with these stocks makes it even harder for experienced traders to decide on the next possible price change hence why the services of an experienced and qualified stock broker would come in handy.
  • Digging for answers: A stock advisor who endeavors on research for answers before submitting his or her report is termed as competent. The fluctuating characteristics observed on penny stocks require the stock broker to keep digging for answers. Research allows the broker to forecast on stock exchange trends. Inexperienced stock brokers who rarely research will start speculating on probable price changes and value fluctuations. These guesses can result in misinformation and hence wrong decisions on the trade.
  • Good and experienced risk managers: Everyone already knows that investing in penny stocks is taking chances that can result in either into increased profits or heavy losses. A stockbroker equipped with good management strategies will automatically evade making hefty decisions by calculating risks that could easily be avoided. Anticipating risks and properly managing them culminate to better returns on investments.
  • Records tracking: Every successful business is built on past records. By keeping a track on past performances, you are able to anticipate the future and hence alter procedures where necessary. This is the same case with investing in penny stocks. A good brokerage firm or a reliable stock broker will keep past clientele records. These records will help the client avoid falling into a ‘ditch’ especially when the market is too volatile for penny stocks.
  • Excellent trading techniques: Trading strategies that include price anticipation and possible changes based on fluctuating international currencies is one factor that characterizes the qualities of a commendable stock broker for penny stocks. The broker needs to be on top of things when it comes to advising the investor on the best time to buy or sell penny stocks.
  • Honesty as a quality: When it comes to investing in stocks and using stockbrokers as the medians of trade, you need to focus on those representatives that showcase endless qualities of honesty. Trading penny stocks require the same kind of trust and openness between the trader and the counselor. Stock brokers with a history of deceit or sleeping on the job should never be utilized. A broker’s portfolio will determine his or her competence to help a young investor on penny stocks earn profits. For this reason, it is highly recommended that you find out more about the stockbroker before you sign up with him or her.
  • Specialty services by the broker: Every broker must have a unique way of representing his specialty skills to the client. A penny stocks broker will not only showcase the regular services that any other broker will represent from his or her portfolio, but will also include something extra. For instance, smart brokers will include free services such as market updates, among other useful details that will link them with the client. An easy to access stock broker is also highly recommended when it comes to penny stocks investments. This is because a volatile and high-risk market like penny stocks requires continuous monitoring and communication with the stock broker. This can only happen if the stock broker and the investor were at a close proximity to exchange market ideas as and when they happen.

Investing in Penny stocks requires more than just starting fee, account or a broker to guide you with your first investment. You need to be able to make informed decisions on the kind of stock broker you need to hire, look at the market and determine if it would be right to trade. You can easily avoid any uncalculated risk through continuous research, strategic trading as well as maintaining a portfolio of past records in the market.


Penny stocks are considered the cheapest and most affordable stocks for purchase by players within the penny stocks industry or beginners in the stocks market. The stocks range from about a dollar to a penny hence the name itself.

The stocks are popular in smaller companies, although due to high demand, major players in the market like NASDAQ and many others have also joined by introducing penny stocks trading in their online sites.

Investors choosing to buy or sell penny stocks are simply choosing this line because it’s affordable and thus would use it to grow their business without incurring losses. Since penny stocks are bought and sold through speculations, as there is no singular price, they are considered high risk.

Stock brokers with past experience on selling or aiding in the purchase of penny stocks are recommended to both buyers and sellers of the same. These brokers act as guides hence assisting both parties from incurring huge losses especially when the stocks are at their lowest.

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