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Where to Buy Penny Stocks

Updated on October 19, 2009

Where to Buy Penny Stocks

If you’re looking for information on where to buy penny stocks, the answer is actually much easier than you might think. Penny stocks are definitely not the most “orthodox” investment vehicle out there today, but the appeal of penny stocks is indeed universal. For the uninitiated, penny stocks are basically stocks that are traded at a very low price per share, usually below $5.00 per share. The companies represented by these stocks are known as “microcap” companies, because they normally have a market capitalization (or, total overall value) below $10 million. Although many people consider the penny stock arena to be the “Wild Wild West” of the stock market, spectacular gains can be realized, but as we all know, leverage is a two-edged sword. The same penny stock that can yield you 300% in a matter of weeks can also drop like a hot rock in that same amount of time (or even shorter), and leave you “dazed and confused”. The reason why such leverage is easily attainable is because of the low price per share. It takes much less of a drastic move for a stock trading at 10 cents per share to move to 15 cents per share (a 50% move), than for a heavyweight stock such as Google or (some similar “blue chip”) trading at around $400.00 per share to move to $600.00 per share. Notice, it’s the same percentage move, but for a blue chip to move in such a dramatic fashion it’s going to be a much longer haul than the move for a penny stock. The volatility of penny stocks is something that not every investor can stomach, so it’s always good to know your own threshold for pain, and your personal tolerance for risk (i.e., your “Uncle point”). Truly if you even think about buying penny stocks, you better plan for the best and prepare for the worst. You have to be willing to kiss that money goodbye and not even shed a tear if you want to step into the arena of penny stock trading. Notice that this hub is entitled “Where to buy penny stocks”, not “Where to invest in penny stocks”. Penny stocks by nature are a trader’s instrument, not a long-term investor’s instrument. You have to realize that penny stocks are more for the aggressive, speculative short-term trader, not the Warren Buffet-style long-term value investor.

Image courtesy of Microsoft Office Clip Art
Image courtesy of Microsoft Office Clip Art

Where to Buy Penny Stocks: Brokers, Stock Screeners, Etc.

Now for some specifics on where to buy penny stocks. You will of necessity need to have an online brokerage account, preferably with such reputable brokers as Scottrade, E-Trade, TD Ameritrade, or Zecco. Most of these brokers have good deals on commissions and fees, and the required minimum deposits to open a brokerage account are relatively small. Many of them require no more than a $2,000 minimum initial deposit to get started, and several of them require significantly less. Once you have established your brokerage account (after a quick application submission involving some boring paperwork and then a quick funds transfer), you are permitted to trade basically any stocks you want to. Most brokerage accounts are more lenient towards long trades, but will normally require some type of deposit to stay on hand for short trades. But, in the case of penny stocks, it is a much more common thing in the investment world to go long on penny stocks rather than short, given the small prices per share. As far as the actual exchanges that carry penny stocks, the absolute most famous exchange for penny stocks is the Over-the-Counter Bulletin Board, known as the OTC-BB. Also well-known on the list is the National Association of Securities Dealers Automated Quotations, also known as NASDAQ. These two exchanges are the most common carriers of penny stocks, but the New York Stock Exchange (NYSE) every now and then will have some stocks that loosely qualify as penny stocks, but usually those stocks are “on their way out”, or in other words, on the verge of being de-listed, which spells trouble and more than likely a turbulent trade that may not yield hardly any profits. The best way to select penny stocks out of the thousands that are available is by using a stock screener, which is available on both the NASDAQ and the OTCBB websites. Sort the stocks by price, and also include volume statistics. The other search criteria (P/E ratio, etc.) are really pretty much useless; just stick with the basics. You can sort by percentage gain or price gain, most active by volume, and other criteria to help you select the right penny stock for you. As with any other investment vehicle, it is always a good idea to do thorough research before laying down any money for trading. Hopefully, this hub about where to buy penny stocks has assisted you at least in a small way in pursuing your trading goals.   

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