Penny stocks are perfect for someone who wants to invest in stocks without a major financial outlay. In fact, most penny stocks trade for under $5. But that doesn’t mean you can’t lose money with them.
Want some tips for wiser investing so you don’t lose your shirt? Keep reading our penny stock guide for beginners to learn more.
How to Find Penny Stocks
Although there are a few penny stocks traded on major exchanges like the Nasdaq, most are not. This is because the larger exchanges have minimum bid requirements. These requirements often result in the delisting of penny stocks because they don’t meet the minimum amounts.
Because of this, you can find penny stocks that trade for under $1 a share and a few that are under $5 on the OTCBB (Over-the-Counter Bulletin Board).
There is also another quotation publisher that is not as reputable; Pink Sheets. Stocks on Pink Sheets don’t have requirements and aren’t registered with the SEC. They are riskier.
Stick with penny stocks listed on the OTCBB, especially if you’re a new trader.
Choosing Penny Stocks to Trade
Use a stock screening tool to narrow down your choices. First, search for those in your price range. Next, break them down even further using the suggestions below.
You’ll want to stick with penny stocks that have a solid history of earning and growth, making 52-week highs. This is a positive signal of profitability.
Going for high volume stocks is safer. Look for those that are trading over 100,000 shares per day. Lower volume stocks make it hard to get out profitably.
If you can find 52-week breakout stocks doing over a quarter million a day, you have a winning combination.
Stick with penny stocks that trade for more than 50 cents a share. This assures their liquidity in play.
When looking for penny stocks to trade, consider sticking to industries that you understand or have an interest in. This way, your familiarity gives you an insider advantage.
With penny stocks, it’s possible to make 20% within days. However, if that happens to you, make sure and sell right away. Don’t wait it out hoping for more, because more than likely, that penny stock has been inflated via promoter hype.
Choosing a Stock Broker
A stockbroker provides guidance and a trading infrastructure for investors. When deciding who to choose, pay attention to their fee structure and extra charges.
Some charge a commission based on each share traded. Others charge a flat-rate fee across the board that’s not based on how many shares are traded. The latter makes more sense for penny stock traders.
Ask about online or mobile app trading options too. Having to wait for an order taker on the phone can impact your ability to make timely trades in an industry where each minute counts.
Don’t fall for scrupulous penny stock promoters. They promote stocks to benefit the companies they work for and not the individual investor. Be wary of the testimonies bragging of riches and the penny investment newsletter tips.
Penny Stock Tips
If you decide to get into trading penny stocks, keep these tips in mind:
- Do your own research
- Don’t be gullible
- Don’t get attached to one particular stock
Penny Stock Guide: Final Thoughts
We hope this brief penny stock guide was helpful. Remember to start with low priced shares until you gain experience. And always, only use money that you can afford to lose because penny stock trading is volatile. Good luck!
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