Penny stocks are not bought and sold on the New York Stock Exchange, or on any other major stock exchange for that matter. They are penny stocks because they are not major.
So, how do you buy penny stocks? You buy them on over-the-counter markets, or in other words with pink sheets.
The following are some general steps to buying penny stocks:
Step Number One: Choose a broker:
If you would like to buy penny stocks you need to find a broker that will place an order for you. Not all stock brokers deal with penny stocks for a variety of different reasons. Many stock brokers will not cover them because of the difficulties in tracking them. However, there are brokers out there that do deal with penny stocks, and there are even some online brokers that specialize in penny stocks. So, first thing is first, you have to have a broker, so first find a pool of brokers that deal with penny stocks, then do your due diligence and find one that fits you, your budget, personality, etc. Don’t be worried if the broker you choose gives you a written notification about the risks involved with penny stocks, it is required by law.
Step Number Two: Know Your Price
Once you have found a broker, you can get to work. However, before you can do that, you have to know your price. How much money do you want to invest? This can be tricky as some people think penny stocks, and are fooled into investing in them instead of major stocks because of the price. Have a set amount of money you intend to invest, regardless of which security you are going to invest it in.
Step Number Three: Do Your Research
Once you have a good idea of how much money you are going to be putting on the line, the fun can start. You want to start researching companies. These are the potential companies you will be investing in, so remember, the better your research, the better your investment. Unfortunately it can be difficult to find information about many of the companies that have penny stock because they have not been around long enough to have any sort of history you can research. But they do have people, research them if you have to. Your best source of information for researching many penny stock companies would be an unbiased penny stock service that will help you learn the ropes and offer well-researched stock picks. This of course costs money, which then must be factored into the amount you want to spend (step number two). Once you have your research complete, move forward.
Step Number Four: Know Their Price
Now you know what companies you want to invest in, so what is left? You need to know their price. All stocks have two prices: one for the price it can be bought at and one that it can be sold at. These are called the bid price and the ask price. The bid price is how much someone is willing to pay for the stock, or the price at which you could sell your shares. The ask price is how much someone will sell their stock for, or how much you will have to pay. The difference between the prices is called the spread. Do not let the spread confuse you, as many people think the spread is the price of the stock.nope! Make sure you have a clear idea of the price, and how it fits with step number two.
However, the stock price is not the only price you need to worry about. After you pick the penny stock you want to buy, you need to get something in writing from your broker that discloses both the current market price of the stock and the amount of compensation the firm receives for the trade. Once you have that in hand, you have the picture of what stock you want, what it will cost you total, including research fees, stock price, and broker price.
Step Number Five: Make your Purchase
Now you buy your stock. You give your broker the go ahead to make the trade, and you do this in writing. Regulations require brokers to receive written confirmation from the client concerning the transaction, so get it written, and get it to them, and do it fast before something changes.