A Beginner’s Guide: How to Get Started With Penny Stocks
Trading penny stocks is not a difficult endeavor: You usually only need a trading platform that will connect you to the interbank market, and there are plenty of online brokers with easy-to-use platforms available, many of which are even offered free of charge. The prerequisite skills and knowledge required for getting started are not exactly “fast and easy” to take, but they are feasible if you are patient to learn, have an understanding of the risks involved, and are willing to take those risks.
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Below you will find answers to the most commonly asked questions about penny stocks, including what they are all about, how to find them and the main risks you should avoid. Remember this rule of thumb: Financial risk can’t be avoided completely. You just need to know what you can control and what you can’t.
Most investors prefer to trade on stocks listed on major stock exchanges such as NYSE, NASDAQ and LSE (London Stock Exchange). Naturally, the largest companies in the market account for the vast majority of trading volume, but there are 1000s of other companies listed on over-the-counter (OTC) markets, which are offered by inter-dealer quotation services. Most of these companies are quoted in pennies; ranging from 1 to 5 dollars per share, and that’s why they are known as penny stocks.
The advantages of trading penny stocks are plentiful, as they save you money (only a very small initial investment is needed), and time (you can start trading from the comfort of your home in a matter of minutes). However, there are a host of additional reasons why individuals choose to become penny stock traders – the main obvious reason being an attempt to get rich fast.
Some traders pick penny stocks as a way to kick-start their trading activity, preferring to learn the basics of buying and selling stocks on low-priced, small-cap stocks and only afterwards moving on to large, well-established and financially sound stocks, when they feel ready. Conversely, some traders prefer high-risk investments, and are in the game for the excitement and emotional high they receive from getting it right with penny stock. You often hear about traders that have a knack for picking winning stocks that large investment firms tend to overlook, or have a strong belief in the performance of a particular stock (they could be basing this on firsthand knowledge or a gut feeling).
There are plenty of risks investors should consider when trading penny stocks. Sophisticated scammers and fraudsters are plaguing the trading arena with get-rich-quick schemes such as pumping and dumping stocks to artificially raise their prices and immediately sell them afterwards, or by simply trying to convince you to buy (or sell) stocks that are not worthwhile holding (or Short selling). Our advise is to ignore anyone and everyone who tries to convince you to but a particular “too-good-to-miss” penny stock. They’ve either already made a lot of money on that stock, and therefore chances are it’s getting ready for a price correction, or they are trying to manipulate other traders for their own future benefit. Be aware, and stay away from these people. For a more detailed read, go here.
Penny stocks trade in many markets. You should only choose a trusted and reliable one. My recommendation is to start with the OTC Bulletin Board (OTC-BB), an excellent fully-regulated bulletin board with live quotes of penny share prices. Two other great places to check out are the Nasdaq Capital Market, which is comprised of 1000 companies listed on the North American technology stocks index, and the FTSE SmallCap Index – a UK-based index of small market capitalisation companies consisting of the 351st to the 619th largest listed companies on the LSE.
Now that you have learned a bit about penny stock investing online: If you want to try it on your own, you have two options.
Our recommended method for making your first penny stock trades is twofold:
Option 1: Start trading online in a risk-free environment, preferably with a fast and easy-to-use online trading platform. Fortrade offers a great desktop platform and mobile app you can use to trade hundreds of stocks, forex, commodities and indices from across the globe.
Option 2: Before doing anything else, we suggest you go through our list of articles, reviews and updates, as well as read about penny stocks online. There are plenty of resources available to you, but you have to know where to look for them. For that end, do feel free to contact us with any questions or concerns you may have.
If you’re looking for a reliable investing alternative, you might want to consider opening an online trading account at Fortrade Limited. The UK-based brokerage firm is authorised and regulated by the Financial Conduct Authority (FCA) , meaning your money is protected at all times and you are you covered up to £50,000 per investment by the Financial Services Compensation Scheme (FSCS).
Fortrade has free, easy-to-use forex and stock trading apps for Web , IOS and Android.
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