Where to buy Penny Stocks Online?: How to Guide

What Are Penny Stocks?

There are a number of companies that decide to go public. When they need cash, some either file an IPO or start off trading as a penny stock. Penny stocks are those that trade for less than $5 and are traded over the counter (OTC) through quotation services commonly called Pink Sheets. There are many brokers who have access to such stocks and allow you to trade them online. These brokers act as intermediaries between the investor and the third party (who buys these penny shares) and facilitate a transaction between these parties.

Penny stocks have become very popular for those looking for an alternative source of income. However many of them forget that it is as easy to lose money as it is earn. Penny stocks are traded on the NYSE as well as on the OTC market in NASDAQ. There are a number of online stock brokers that trade in penny stocks. Depending on your investment you could either opt for a full service or discount broker. However, it is very important to choose the right broker, as there are a number of fraudsters that operate in these kinds of markets. Penny shares bought online from brokers are safe and profitable if you exercise restraint and caution.

Tips for Buying Penny Stocks Online :

Before choosing the right broker and buy penny stocks online, ask yourself a few questions like, how long has the broker been in the market. It’s best to avoid online firms that do have a credible history to back. They may have a lucrative fee structure, tempting features, but if they are brand new, there is every chance that they may vanish tomorrow.

The second step is to check their reputation. You could visit their websites to determine their fees, commissions and reliability of services. You could also speak to them and get first hand information. The U.S. Securities and Exchange Commission has made it mandatory for every broker to obtain signature from the investor on a statement that gives the investor a complete information about the risks involved and the precautions to be taken before investing on penny stocks. The stocks that are listed on the Pink Sheets do not have to file an annual or quarterly statement. More often the information provided about the companies by the stock brokers are sketchy and do not reveal the truth. The best possible way to find the truth is to keep your eyes wide open.

There are a number of discussion forums like Zecco, Superior investor and Online Trades Forum that provide good research tools for the online penny stock traders to discuss. Once you have decided to buy the stock, simply enter the stocks trading symbol in the stock broker’s online trading platform. It’s best for new comers to invest in small amounts that they could probably afford to lose. Federal Law requires the broker to inform you about the ‘offer’ and the ‘bid’ on the stock and also the compensation that the salesperson or the firm will receive for the trade. The firm should send a confirmation of the prices on mail.Also check the location of the online stock broker. It’s best if they have an office where you could visit if you have doubts about your stock.

Remember that these brokers do not charge a commission in the conventional method but make their profit in the huge gap between selling and buying to people like us. The higher the gap, greater is the margin. So it’s best to be careful when choosing an online penny stock broker.

Penny stock trading is very profitable, provided the reader is vigilant and does not fall prey to the hype and gimmicks supplied by the investors and brokers alike. Remember that there are many who make money by conning you. It’s very often that you would hear traders say that now is the best time to buy a particular penny share. This information is to be taken with a pinch of salt. The more the stock sells the more is the commission.

1. By Joel at 2nd December, 2010

   The article provides very basic and useful information about penny shares. Having been in the penny share business for a while I have always done my home work first by looking over the company’s financial statement examining that how much profit or loss the company made over the specified timeframe and make sure the health of the financials is solid, comparing how much debt the company is carrying now versus how much it was carrying in the last report. Although this is not an indication of what is going to happen in the future it gives a good base for you to work from.
   After all this it is also important to subscribe to penny share newsletters and weekly reviews from authentic sources to keep an update.