What is a penny stock?
Before we delve into the world of buying penny stocks, we need to know what a penny stock is. A penny stock is usually a stock that is priced at less than a dollar. Penny stocks are also known as small-cap stocks or micro caps. At times you can also refer to them as stocks on the pink sheets.
To get about how to buy penny stock online, you need to know that a penny stock technically does not meet the requirements for it to be listed on major stock exchanges. These are information regarding the financial standards, the share price, and even the average share price over a particular time-frame.
For instance, if you take a stock going for less than $5 per share, you will know that such a stock will definitely be expected to go at something higher than that. What you are looking for is a stock that is likely to double or triple for you to reap big out of your investment. In other instances, a stock can even cost as low as $0.50 per share, and there could be one, two, or three million shares of that stock at that price. These are known as outstanding shares. Although the company, in this case, can be said to have a good market capitalization (share price multiplied by the number of outstanding shares), it might be a risky venture to invest in. However, that is what buying stocks is all about, especially micro stocks. You have to assess the worth of the stocks you want to invest in.
Such trends are commonplace in smaller companies, although big companies might also occur depending on their market performance.
The actual buying of penny stocks
The first thing you ought to know is that, unlike ordinary stocks, micro stocks are not traded on a standard exchange, as explained earlier. You definitely would already know how to buy penny stocks online if you have had an interaction with a discount stockbroker. However, this write-up is for you if you are totally new to buying pink sheet stocks.
So, unlike with ordinary stocks, you can only trade in micro stocks through the over the counter market (OTCBB), otherwise known as the Pink Sheets, where you agree, among others, that you are aware of the risks involved in buying an investment. Of course, in any investment venture, the risks can be as adverse as losing their entire investment.
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As you go about your journey to buying penny stocks online, you have to be wary of scams. There are a lot of them out there. The Internet is littered with all sorts of advertisements on “free” penny stock trading. Because tiny stocks are not traded on standard exchanges, you do not need a broker to trade in them.
The most important thing to bear in mind is that a small stock is a publicly-traded stock trading at a meager price per share. In many cases, this can be stocks trading at less than $5 per share. However, penny stocks can cost even less than $1 per share!
As alluded to earlier, small stocks are most prevalent among small start-ups. Be that as it may, little stocks provide for big gains, all for their meager selling prices. As a result, they are very liquid. That is the downside of it. It gets worse when a company’s market position is weak, and its financials rendered fragile. This is what makes the investment risky.
As an ardent trader who would like to buy pink sheet stocks online, there are a few steps that you might want to put on your checklist. These are not cast in stone but can be a helpful guide as you go about your trading.
Because penny stocks are a hazardous investment, you want to reduce that risk by evaluating your investment. The primary thing you want to do is establish the company’s viability you want to invest in. Bear in mind that although they are a high-risk investment, the rewards can also be high! To be on the safe side, always regard trading in penny stocks as a short-term venture. It would help if you did not take buying penny stocks as a long-term investment strategy.
Put, if you are going to buy penny stocks online, you will need a service account with an online brokerage firm. There are no two ways about it. You will not need a broker’s services to need this online account for that purpose. A couple of online brokerage services will require that you make some small deposits when opening an account. This will help you with your initial trading. The advantage of these online services is that they run websites where you can constantly monitor the stocks’ behavior. You may want to check with TD Ameritrade and E-Trade, among others.
The moment you get into a business, you must have established information about it. It is important to have gathered enough information about buying small stocks online before you fully get into the trade in the same vein. It would help if you made yourself abreast with such things as trading terminology. For instance, there “ask” and “bid” prices. It would help if you got yourself acquainted with all this.