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How to Buy Penny Stocks

Stockhouse Editorial
1 Comment| July 24, 2019

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A "penny stock" (also known as a micro-cap stock) is a publicly-traded stock with an extremely low price per share – usually under five dollars and often less than a dollar (hence the name "penny" stock). They are typically issued by small, less-established companies.


Be Aware of the Downside: Volatilty


Penny stocks are not particularly liquid (meaning there may not be a high demand for them) and as a stockholder, you could experience trouble finding a buyer, should you want to sell your shares. In addition, the issuers of inexpensive stocks may also suffer from a weak market position and a fragile financial profile, making them risky investments. Investors in penny stocks should be prepared for the existential possibility of losing their entire investment.

Because penny stocks trade infrequently, it may also be difficult to sell shares once you've bought them.

Since they are not traded on major exchanges (such as the TSX, NYSE or NASDAQ), it’s advisable to purchase them without a traditional broker. The speculative nature of penny stocks lends itself to a "do it yourself" approach through an online brokerage service.

How to Determine if Penny Stocks Fit Your Investing Strategy


Stock issued by small, young companies CAN represent the chance for very high gains. But with it carries the strong possibility of big losses, as well.

When you invest in penny stocks consider it part of a short-term, speculative tactic rather than a longer-term strategy.
As in any investment, never spend more than you’re willing to lose.

You'll also need to understand how over the counter (OTC) stock trading works. Penny stocks are not traded on major exchanges, and are instead traded OTC. This means the buyer and seller will deal directly with each other rather than through a broker.

Instead of trading at a pre-determined price, you will then wind up buying a penny stock at the lowest "ask" price you can find or, in turn, selling shares at the highest "bid" price you can find.

Ask prices will vary among sellers, remember to shop around.


For more info on small cap, micro cap, and Canadian stocks, including tips on how to invest, check out the Small Cap Trending News hub on Stockhouse.

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Comments

Before investing in penny stocks know that in these types of stock risk is too much and too much volatility due to low marketcap. That's why invest wisely with the advice of a expert. I use and reccommend you to download "Stock Advisors: Invest smarter" app which givs you best stock piks and minimize your risk.
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November 30, 2021

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