How To Buy Penny Stocks Using a Discount or Full Service Brokerage

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One of the first questions you may have is how to buy penny stocks.  Before we get there though, you should first understand a little about what penny stocks are.

Penny stocks, also known as nano stocks, dollar stocks, and micro cap stocks are by definition any stock trading below $5 per share.  As such, penny stocks do not typically trade on major stock markets like the National Association of Securities Dealers (NASDAQ) or the New York Stock Exchange (NYSE), unless of course the stock temporarily dips below $5.  Instead, you will find penny stocks listed on the over-the-counter (OTC) and the Pink Sheets markets.  Unlike the OTC however, the companies listed on the Pink Sheets market do not need to file current financial reports with the Securities and Exchange Commission (SEC).

So, how to buy penny stocks?  Well, similarly to buying other types of stocks, your main two options for buying penny stocks are via a full service brokerage or using a Discount Brokerage account.

Full Service Brokerage

Using a full service brokerage will mean dealing with a real live stock broker.  You give your broker (usually done over the phone) the number of shares you wish to buy, the maximum price you wish to pay, and the ticker symbol of the stock.  The stock broker would then attempt to purchase these stocks on your behalf.  The stock broker gets payed either through a commission per transaction or more commonly through principle transactions, meaning they would make money on the difference between the bid price and ask price, known as the spread.  The main advantage to using a full service brokerage account is that your stock broker can typically give you investing advice as well as facilitating the trades for you.  The main disadvantage however, is these services are typically expensive.  If you decide on a stock broker, be sure to find one that is reputable and trustworthy with a solid track record.

Discount Brokerage

Alternatively, you may create an account with a Discount Brokerage firm.  Once you’ve created an account, you can make trades online and with relatively little effort.  The main advantage with a discount brokerage account is that it’s much cheaper than using a full service brokerage but you need to know what your doing so it’s not advised for novice investors.  Also, for very thinly traded penny stocks, you may simply not be able to execute your desired trades for the price you want without the use of a stock broker who has more resources at hand.

Knowing how to purchase penny stocks is one thing but knowing what stocks to buy and when to sell them is another.  Remember, trading penny stocks has a very high risk attached to it.  Yes the rewards can also be great, but you need to know what you’re doing so whatever you do, don’t just go off and start buying random penny stocks hoping they’ll appreciate in value.  Get educated first.

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3 comments ↓

#1 Activetrader-links on 05.27.10 at 5:00 am

Excellent Post! I like the way you have described about how we can buy penny stock. Penny stock is still a risky investment. Buying penny stocks, however still is a legitimate investment that can often easily provide a double digit return on your investment. At the same time, if you don’t understand what you are doing, then investing in penny stocks could be a double (or even triple) digit loss!

#2 Robert on 05.15.11 at 7:19 pm

Thanks very informative information and very usefull

#3 Gregory on 05.25.11 at 3:06 pm

Can someone tell me a way to buy penny stocks without using a broker?

Is there a site somewhere I can use to see whats out there and buy/sell penny stocks?

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