subject: Stock Market Series: How To Trade Penny Stocks [print this page] Stock Market Series: How To Trade Penny Stocks
Penny stocks cost $5 or less. They are not traded in the main markets but rather they can be found in markets such as NYSE, AMEX and NASDAQ. Since they are handled independently and are availed at low costs they are the best kind of investment for new investors who do not understand the workings of the market counters. Before you can start trading however, you have to consider the following.
First, you must contact a stocks broker. However, you should not expect a professional to take this up, as most of them understand that you will be investing small amounts of money. But as you get experienced, it becomes less important to have a middleman.
This kind of trading is considered a high risk. In some instances, it can double or even triple. In addition to this, most of them belong to new companies and as such, do not have any confirmed liquidity nor backing. As such, it is important to weigh your options carefully.
It is also important to learn where the over-the-counter, OTC markets are located in your area. It is important to ensure that you locate a direct contact since these are not availed in the average market.
Note that penny stocks are sold by an estimated price and for this reason, it is advisable to learn about the bid and asking connection. When you decide to purchase one, it is important to note that what you pay is the asking price that was requested by the seller and it might not necessarily be the actual price of the same. In most instances, this is inflated by a 255 margin.
If you are planning to buy these in sets of 100, then it is always advisable to enlist the help of a broker. This is an ideal move as it makes it easy for you to back out of the arrangement if the prices go above your budget.
