Penny Stock Trading
by Charles
Finally a site dedicated to providing quality information on Penny Stock Trading rather than trying to sell you scams.
With Penny Stock Trading we will take a serious, professional look at the business of penny stock trading. We will not be promoting stock picks or selling products related to the penny stock market. We will examine and present the cold hard facts and provide leads to legitimate established brokers and references.
Penny stock trading is not a means to “get rich quick” and involves both serious work and serious risk. Please see the following index for help in navigating this page. Each section will be more thoroughly explored with its own page in the near future.
What Is Penny Stock Trading?
How To Trade Penny Stocks
Where to Buy Penny Stocks – Penny Stock Brokers
Penny Stock Fraud and Stock Promotion
Stock Trading Software
What Is Penny Stock Trading
Penny stocks are issued over-the-counter (OTC) through institutions such as the OTCBB (over-the-counter bulletin board) and the Pink Sheets. These are common stocks which lack market capitalization. Sometimes they’re brand new, but sometimes they’ve been de-listed from the stock exchanges.
Some people think penny stocks are traded thinly, however share volumes often exchange in the several hundred million range daily. Because of these millions of exchanges and low prices, the stock is often manipulated by organized promotion (or to put it simply, hype). This can be difficult to combat as often it is difficult to find verifiable information on penny stock companies.
Sometimes it is not the company itself that participates in this promotional manipulation but traders attempting to exploit the market through its volatility.
In the U.S. markets, the specific label “penny stock” refers, in a general sense, to stocks traded beyond the major stock exchanges (NYSE or NASDAQ).
But technically, the SEC (Securities and Exchange Commission) defines a penny stock (or micro cap stock) as a speculative low value certificate for a small company, regardless of its market capitalization and regardless of its being traded on NASDAQ or the New York Stock Exchange.
How To Trade Penny Stocks
In this section we will provide a brief summary of the actual penny stock trading process. While it isn’t that difficult from a technical standpoint, you should evaluate a number of variables before you begin throwing your money into the delicate process.
For more details and some specific caution, please visit my full article on this topic: How To Trade Penny Stocks.
Trading penny stocks boils down to the following process:
- Research the entire market and practice online paper trading before you even consider proceeding.
- Open a stock trading account with an online stock broker. Please read more in my penny stock broker article: Penny Stock Brokers.
- Familiarize yourself with your broker’s specific conditions and terms, particularly their transaction fees.
- Connect your bank account with your broker’s account. This can take a few days. I suggest keeping a separate bank account which you use for strictly your penny stock trading.
Once you’re technically setup, you’ll need the following data to execute your penny stock trades:
- Where does the stock trade? (NYSE? Pink Sheets? OTCBB?)
- What is the penny stock’s ticker symbol?
- The volume (the exact amount) of penny stock shares you desire to buy
- In most cases you can save on fees by trading penny stock shares in multiples of one thousand.
- Define your specific purchasing price.
- IMPORTANT: Define your expiration date. This is how long you wish to hold your order open, or the last closing date on which you would accept this exact trade stock, price and volume.
In the opposite direction, you’ll use essentially the same penny stock data and same process while executing a penny stock trading limit order.
Again, for more details on this process please read my full article on How To Trade Penny Stocks.
Where to Buy Penny Stocks – Penny Stock Brokers
It is very important for you to purchase your penny stock through your established micro cap stock broker. As you delve into the world of penny stock trading, you will discover organizations and services who offer to both pick your stocks and buy your stocks for you. IMPORTANT: Steer very clear of these kinds of services.
Again, please see my article on penny stock trading brokers for more detail, but you should generally find yourself trading penny stocks with familiar names and always trade from your established online trading brokerage account. I also suggest reading an overview on how to consider different brokers in this Penny Stock Trading article: Where to Buy Penny Stocks
Some common, trustworthy names you’ll come across include Vanguard, Charles Schwab, Fidelity, Scottrade, Sharebuilder, TD Ameritrade, Zecco, E*Trade. There are plenty of others of course, but these are the most established and trustworthy of the online penny stock brokers.
Yes, some of these major stock brokerages are more expensive then some advertised services out there. But remember, we’re talking real money here, and there are plenty of scammers ready and willing to exploit the foolish and naive. So stick with well-known, reliable online stock brokers.
Penny Stock Fraud and Stock Promotion
In another article, I will go into much greater detail on the various known penny stock fraud schemes. But for now here are the most common penny stock fraud schemes: Pump and Dump, Chop Stock, Biased Recommendations (or Sponsored Picks… your friendly neighborhood “penny stock newsletter” probably engages in sponsored picks), and Offshore Brokers.
Before you abide by any advice provided to you, be sure the provider of this advice isn’t associated with any of these known penny stock manipulation schemes. For more on this financially delicate matter read my evolving penny stock fraud article.
Stock Trading Software
Penny stock trading software provides the essential tools you’ll require to research penny stocks, collect vital data and execute microcap stock trades. In some cases you may find application packages which also help you manage your brokerage accounts.
There are generally two flavors of stock trading software: all-in-one packages try to cover every possible functionality and specialized packages which focus on a single component and fulfill that purpose entirely.
Component software is usually more focused and more potent while complete packages often lack versatility and appeal to more casual traders.
In many cases these days, you can rely on your established penny stock broker to provide you with the services and software you need. However, if you plan to day trade penny stocks, especially aggressively, you may need to invest in some specialized applications.
Charting software is a common component application utilized by day traders to create a graphical representation of the data to assist them in making snappy decisions.
I hope this page has given you a strong overview of penny stock trading. If you’ve really read this far, congratulations. You’re well on your way to learning the art and science of penny stock trading.