Penny stocks, also known as micro-cap stocks, are not traded on the floor of a traditional exchange, like the New York Stock Exchange or the NASDQ, although the NASDQ does have a small cap market. Penny stocks are usually traded on the Over the Counter Bulletin Board (OTC-BB). The American Stock Exchange (AMEX) and on what investors call “Pink Sheets”. All these trading options have different listing, filing, and regulatory requirements, so investors should take these options into consideration before purchasing penny or microcap stocks. |
Since penny stocks trade at a much lower share price (generally under $5.00 a share), most penny stock investors choose to forego a traditional stockbroker when buying and selling these stocks. By researching, purchasing, and executing trades themselves, penny stock investors save themselves hefty brokerage and trade fees. When you dealing with low prices and high volumes, the costs and fees associated with broker assisted trading can really add up.
Once an investor decides to start investing in penny stocks, the first thing he or she should do is research some of the on-line brokerage firms. There are a number of online firms that cater to penny stock investors. Take a look at the price of the trades. You will pay more for a broker assisted trade than an unassisted trade. These firms also have varying requirements when it comes to maintaining a minimum balance, trade activity, and quarterly or annual maintenance fees. Consider these fees structures carefully, as they could have a large impact on your bottom line. Many online forms offer new customers an incentive, often waiving balance transfer or per trade fees for an inductor period. Remember to take advantage of these if offered.
Once you have decided on an online firm, you need to decide if you are opening a cash account or a margin account. With a cash account, you must have the available capitol to execute a trade. It works like a checking account. A margin account works like a line of credit. In addition to your actual cash on hand, you can borrow money from the brokerage forms based on the equity of the stock you own.
Once you have decided on the penny stock you want to purchase, get a real time quote on the stock. You can enter the stocks trading symbol and execute the trade immediately, or you may set up some parameters that may help you get a better price for your penny stock. You may decide to play a marklet order or a limit order, which will purchase your penny stock online when the stock reaches a certain price.
Since the penny stock market can be highly volatile, you can set up a number of safeguards for your online trade to help stop some of your losses if your stock begins to lose value. A stop order, stop limit order, and a trailing stop order can all limit your exposure to big losses when investing in penny stocks on line. Investing in penny stocks online is the easiest way to take advantage of the high risk/high rewards these trades can bring. Be sure you have a plan for buying and selling, and stick to it so get the most profit from your online trades.
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