Buying Penny Stocks

How To Buy Penny Stocks

I’ve been asked many times for advice on how to buy penny stocks. Is it any different than buying a Blue Chip stock? My answer to that is yes, there is a big difference between the two.

When I start looking into a small-cap company, especially one whose stock price is less than a $1.00, the research that I need to do is much more involved because the lack of analysts and other resources I would use to get my information. a few times I’ve called the company to talk with the the CEO (Chief Executive Officer) or the CFO (Chief Financial Officer) to get a feel of the management and their confidence in the direction of the company. You would be surprised how much they’re willing to talk to potential investors. Go visit their website to get their latest financial report. You’ll also need to look at their competitors within their industry as well as their potential market share.

If you’re wondering about how to buy penny stocks where you can get rich overnight, be advise that those stories you hear are mostly from these “pump-and-dump” website or brokers. Yes you can make good money if you’re quick enough to buy and sell stock (in most cases) within the same day. I’ve seen too many times from beginners investing in penny stocks see the gains, but wait too long before the Profit-takers have already sold out their position. If you are someone who can not be around the computer all day while the stock market is opened, then you shouldn’t be thinking in this type of stock trading strategy.

Another thing you have to keep in mind is not to put too much capital into a penny stock that you are not prepared to lose. So often investors will lose 75% or more of their investment in a penny stock. As with any investment strategy, you should never put all of your capital into any one sector or stock. All stocks rise and fall in value and when it comes to penny stocks, their price swings are drastic.

If you’re asking about how to buy penny stocks as in, Where do you find a penny stock broker? There are many different online penny stock brokers that you can use. These days it’s a lot easier to trade online than ever before. TD Ameritrade, Zecco, and Scottrade are just a few you can use, but make sure you read their list of fees they charge for stocks that trade for under $1.00. There are some that will have extra fees to when trading penny stocks. I wrote a earlier post about the difference between some of your choices.

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Penny Stock Brokers

Are you wondering which of the many penny stock brokers out there should you use when buying penny stocks? There are many choices available to you. In this post, I’ll list a few for you to choose from.

It’s no longer like it was back in the days when you had to deal with a small brokerage firm to be able to trade penny stocks and accept whatever fee they were going to charge you. Even in the beginning of the online stock brokers, you weren’t able to trade but a few stocks valued under $1.00 and to trade sub-penny stocks (< $0.01) was out of the question. Today most of the popular online brokers like, TD Ameritrade, Scottrade, Zecco and E-Trade will take orders for penny stocks.

So the question is, which one? In my opinion, I prefer to use TD Ameritrade. They were recommended to me by a friend and I’m glad I did. I have also dealt with E-Trade as well, but the tools and the customer service I receive from TD Ameritrade surpasses E-trade, so now I only use them. Their fees per trade ($9.95) are more on the higher end than their competitors, but since I do so many trades per year, when I mentioned that I was thinking of going somewhere else, they lowered the fee for all of my accounts to just $7.00 per trade no matter how many shares I purchase.

Scotttrade is just as good as TD Ameritrade with their tools, but from a few traders I talk to say their customer service leaves something to be desired. Their transaction fee is less than TD Ameritrade at just $7.00 per trade. but for trading penny stocks they charge an extra fee. They refer to it as a Low Price Stock Fee. Scottrade will charge ½% for stocks under $1.

For those of you who have your own Stock market software, you might not need to use one of the mentioned websites. So in that case you need to look at Zecco. This online stock broker only charges $4.50 per trade, no matter the size. They also have the least amount (actually none) of fees. Zecco doesn’t have a minimum balance requirement either. Great for investors who are starting out with a small portfolio. Zecco also offers 10 free trades per month providing you do a certain amount of trades per month.

There are so many that I really can’t list them all here in this one post. Look for yourself and you will see more choices than you were really looking for. Everyone is different and so are their lives, so you are the only one that can make this decision for you. Most of these penny stock brokers applications will only take you ten minutes to fill out and transferring money is easy too.

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Beware the Professional Penny Stock Broker

These days there is really no rationale for hiring a professional full service stock broker to buy penny stocks on your behalf. Once you retain a typical stock broker to manage penny stocks for you, you are buying into exorbitant commission charges, often incompetent business services, and at worst, occasional scam artists.

Obtaining reliable investment information on the penny stock market is extremely difficult because of the scarcity of dependable corporate data in the treacherous world of the OTC and pink sheets. By the time a professional stockbroker were able to pass along important news about a penny stock, it would probably be too late to capitalize on it. Generally speaking, if the broker is strongly promoting a specific penny stock issue, he stands to benefit financially under the table, one way or another. The responsibilities of a stock broker do not mesh with the qualities of a good financial advisor. The broker is compensated for the amount of dollar volume he generates via stock sales. He is interested in generating high commission sales, not providing quality financial planning advice. He is naturally going to be interested in generating the quick buck via high commission sales, not working towards establishing a long term client relationship. On top of that, you end up paying triple the charges for receiving poor investment advice.

Stay clear of these charlatans and hook up with a reputable online penny stock broker. Generally speaking, you will not be communicating with anyone from the brokerage, unless there is an administrative question regarding an order. You will not be pestered by any salesmen looking to make a quick buck, leaving you free to perform independent investment analysis and place orders at your own discretion. You will be able to focus on the data that actually causes stock movements, such as the real time price of the issues and the commonly used pertinent mathematical ratios.

If discussing your finances with a professional is important to your peace of mind, then seek out a financial planner who charges a fixed fee for his services, and who does not have a vested interest in the actual stock transactions. The wave of the future for penny stock investing is strictly through the internet.

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