Buy Penny Stocks Guide

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.

Using a full service brokerage will mean dealing with a penny 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.

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 buy penny stocks is one thing but knowing the best penny 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.

If you’re wanting to profit from penny stocks, you might want to look beyond the US borders (assuming that is where you live) and more specifically pay attention to Canada.  A lot of investors who specialize in micro cap stocks love Canadian penny stocks and for good reason.

Canadian penny stocks and Canadian stocks in general have performed extremely well the past several years compared to the rest of the world.  Canada, like the US is a very stable democratic country with low risk for political or economic instability.  However, Canada is also extremely rich in natural resources including oil and precious metals which have all been skyrocketing in recent years along with the stocks related to these commodities.  Canadian gold penny stocks and oil penny stocks in particular have done very well and made a lot of penny stock investors small penny stock fortunes!

With that said, how do you get your hands on Canadian penny stocks?  In a nutshell, Canadian penny stocks can be found in five different markets:  the pink sheets, OTCBB, the Toronto Stock Exchange, the TSX Venture Exchange, and to a lesser degree, the Montreal Exchange.   The pink sheets and OTCBB are US markets and trade in USD.  The other three are all Canadian stock markets and thus trade in Canadian currencies.  The Toronto Stock Exchange is by far the largest and most reputable Canadian stock exchange with the strictest regulations.  The Venture Exchange however is probably where you’ll find the most penny stocks and in particular, precious metal penny stocks.

Now that you know a bit about what markets Canadian penny stocks trade in, you really have two main options as far as how to actually buy them.  The first option is to open a Canadian brokerage account whether it be a discount brokerage or full service brokerage.  Some popular Canadian discount brokerage companies include Scotia itrade (formally E*trade Canada), Interactive Brokers, RBC Direct Investing, and CIBC Investor’s Edge.  Full service brokerage firms include BMO Nesbitt Burns, RBC Dominion Securities, and Laurentian Bank Securities.  The second option is to open a US brokerage account that allows trades in Canadian equities or to simply buy Canadian penny stocks via the pink sheets or OTCBB markets.  The OTCBB especially often has the USD equivalent version of a Canadian penny stock that can be purchased in US funds.

No matter which option you choose, buying Canadian penny stocks is not difficult and the rewards can be great.  Just make sure you always peform adequate penny stock analysis  and research on each company just like you would before buying any stock investment.