Submitted by: Chris Johansen

Stocks that trade at low price, usually under $5.00 a share, off the major stock exchanges are known as penny stocks. Companies that offer penny stocks tend to be small, highly volatile companies that may lack the liquidity needed to trade on either the New York stock exchange or the NASDQ. Penny stocks are traded “over the counter”, and there’s no need to engage the sometimes pricey service of a brick and mortar investment broker.

Online brokerage sites, like E-trade and TD Ameriatrade, are the easiest way to buy and sell penny stocks. After setting up an account, you will need to fund it with a balance of cash to cover the cost of stock purchases and transaction fees. Penny stocks are a high risk, high reward game, so their buy and sell activities tend to happen quickly. An online brokerage account allows you to monitor the stock activity and execute your trades, as soon as the circumstances are favorable.

Many websites offer penny stock tips, identifying the “hot” stock of the day, week, or hour, and offering some analysis into the stocks potential for revenue. These websites also offer links to purchasing sites. These sites also give investors access to the portfolios and trades of successful investors. Potential investors can see which stocks have been making money over any given time period. Another benefit of these penny stock sites is the access they give you chat rooms, blogs, and discussion forums. On these sites, investors have an opportunity to discuss stock recommendations and strategies with other investors.

Once you decide on a stock to purchase, you simple enter the company’s trading symbol on your online stock broker’s platform, and purchase the stock. Since you are executing these trades without a broker, it will be up to you to monitor the stock’s performance. Penny stocks are volatile, so have a firm sell strategy in mind. You will need to sell quickly once you reach your threshold. The value of penny stocks changes and fluctuates more quickly than traditional stocks. You can take a huge loss of you don’t sell quickly.

Online brokerage firms may not offer you the research and due diligence you need to make informed decisions. Penny stock traders can easily become victims of fraud, especially since there is much less regulation. Be wary of any stock tips you receive via email, fax, or social media. Often times, these investors are compensated for their participation in the marketing of a particular stock. Be sure at you understand the position of whomever is recommending the stock. You can find unbiased and comprehensive research at sites like Yahoo Finance and Google Finance.

For investors with a high tolerance for risk and a taste for big reward, penny stocks are an easy way to get into the investment game. A long as you do your due diligence and closely monitor your investment, penny stock investing can provide big dividends for limited investment. Online trading platforms make researching, purchasing, and monitoring your penny stocks convent and affordable.

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