There are other names for a penny stock: a micro cap stock or a nano stock. How does an investor buy penny stocks, what is the procedure that one can follow in order to invest in penny stocks? These are the 2 most frequent questions asked by investors who want to start trading.
Recommendations on the various websites by traders and agents, who are engaged in doing research of the companies offering penny stocks is a must read. At least the information is available, how far it is true and applicable to your needs is your decision.
Try out the various investing methods available on the internet. It is meant for beginners and shows you step by step how to make decisions on trading. Newsletters are available and some websites of traders offer a membership with a fee, to which you can subscribe. After all you need to invest some money too to get massive returns.
When you are buying penny stocks for the first time, start low, start with only about 10% of your money. You can buy penny stocks online on some brokerage sites or you can divert your funds through a stock broker, who will naturally advise you what to buy, when to buy, how much to buy and when to sell. Penny stocks are traded in the over-the counter-market. There is a middle-man or a broker who trades the stock representing the investor. A transaction is arranged between the investor and a third party, and the broker then encashes the commission for his brokerage. The trick is to learn when to sell the stocks and for each company the gains and the losses each day are different, so there is no set formula for selling them. Some penny stock exchanges guarantee no loss, but again that is for you to check and risk for yourself.
Very often the broker does not charge a commission, but he makes money on each transaction by buying and selling stocks at the correct time. This is known as the ‘spread’. It is a term used in the penny stock market meaning the difference between the bid and the ask price. This can be anything between 30-100%, and the broker profits from the spread because he may have risked holding the penny account himself and then sold it at an advantageous time. So the risk of the investor also rises, that is why one has to be very careful about choosing a good broker, because there are many frauds in the market. The buying and selling of penny stocks is not simple and there is a lot of money involved too, but most small companies still have them to generate funds, especially if they are new.
So which are the best type of penny stocks to buy? We took some votes and asked 1,000 penny stock traders which they preferred. Here were the results.
Marijuana stocks received 420 votes ironically
Oil Stocks received 230 votes
Biotech Stocks received 120 votes
Gold Stocks received 110 votes
Alter Energy Stock received 90 votes
Food and Beverage Stocks received 50 votes