How To Start Trading Penny Stocks 101

If you don’t have the cash to pay for the stock of a Fortune 500 company, you can always use the little money you to invest in penny stocks. What are penny stocks?

They are company stocks that are priced $5 or below. Unlike your Facebook stock, they are not traded on the New York Stock Exchange and other major stock exchanges. Instead, they are traded on the Over The Counter Bulletin Board or OTCBB as well as the OTC Markets Group, which was formerly known as Pink Sheets. You can buy stocks through any qualified broker like Charles Schwab. The difference between penny stock trading and Fortune 500 stock trading is that there is a minimum lot order in the former. For example, if a stock is traded at $3, a broker would require you but at least 1,000 shares.

When you trade stocks, the only way to make any significant amount of money is by buying high and selling low (forget about dividends). The road to big profits in penny stocks, however, is littered with scammers and manipulators, and you could end up losing a lot of money. You can avoid a losing scenario by following the tips below or visit for more in-depth reviews of different trading courses.

Choose brokers that charge flat commissions

You could end up spending a lot of money on commissions alone if you choose a broker that charges percentage commission.

Ask for the how of the price increase

There are two ways that a stock price can increase. One is through a breakout in company earnings. Another is by overbuying. No matter what you do, only choose the stocks that increased in prices because it enjoyed high earnings over a 52-week period. Take a look at the company filings at the Securities and Exchange Commissions and check where the company is at financially. If there’s a surge in the price but the filings indicate a flatline, the price is a bubble brought on by manipulators enticing people to buy with the promise of huge profits.

Look at the historical earnings

Always look at the historical earnings of the company offering a particular stock. Not reading can mean the difference between owning artificially-inflated stocks and solid stocks backed strong company earnings.

Sell at 20 to 30 percent profit

If the price moves up by 20 to 30%, sell your stocks immediately. Don’t be like other traders that wait for a 1,000% price increase. There is a reason why a company stock is traded at the OTCBB and not the NYSE – the company’s performance is unproven. If you wait and wait, you might just find yourself losing money when the company files for bankruptcy. So, again, don’t be greedy.

Have a stop-loss

Minimize your losses by having a stop-loss in place. You could, for example, decide to limit your losses to 20%. So, when a $1 stock falls to 80 cents, you sell immediately. Having this system in place means you will never lose all your money.

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