Penny Stocks are low priced and they bear a price below $ 5 for every share. NASDAQ and NYSE are major stock exchanges where these stocks are not traded. They are traded only outside and this place of trading is called over-the-counter-bulletin-board (OTCBB). Since the low priced stocks do not meet the guidelines as imposed by major stock exchanges, OTCBB provides trading platform.
You have to watch out for certain criteria before you select a broker to trade in penny stocks. Even if your stock falls under the list of penny stocks to watch, it is subject high risk of volatility. These stocks will not be listed in NYSE even. Sophisticated investors having a good strategy are recommended to trade in these stocks.
What you should see in a Broker?
- Low priced stocks are traded in bulks. Your broker should charge low commission for the large number of shares to be traded. This results in cost savings that reflects the surcharge for every share you own. Brokers levy extra commission for $ 2/- shares than $ 5/- shares. If you intend to trade on 500 shares, then the extra charge will be on all the 500 shares. You should always ear this in mind when dealing with your brokers.
- Trade volume is another factor. Even brokers give consideration for charging no additional fees when you trade on unlimited shares. Strategy adopted by brokers also define the number of shares you trade per day. This will be for charging additional commission for another trade.
- There are also restriction on the kind of trading as imposed by your brokers. This restriction is based on the amount per share, the type of trading and so on. These brokers usually make online trading.
Trading without a Broker
You purchase these stocks at a low price and the companies trading these shares would generally be small and unestablished organizations. You can make big gains if you have a sound strategy. When you look out for a broker, it is better to trade on your own. But the speculative nature warrants online broking.
- You have to realize your investment strategy. Unestablished companies trading on these stocks may close down without much notification. Your investment strategy cannot be for a long-term and is short-lived although your chance of making huge gains stands-out.
- There are on-line services for broking such as TD Ameritrade and E-Trade. Instead of going for a live broker you make arrangements with these on-line services by making a small deposit to open an account for trading. These on-line services help very much in suggesting price movements.
- At OTCBB you will be purchasing stocks at an ‘ask’ price and selling at a ‘bid’ price. Purchase price varies between vendors and our bid determines the gain or loss you make on your investment.
- Yahoo Finance, Google Finance and other information services give you information on penny stocks to watch from companies. National Quotation Bureau also gives more information on penny stocks. You have to investigate on the financial health of the company before investing.
- Trading and the method of trading is your choice. Market Orders are not preferred as Limit Orders since the former method inflates the price of stocks you purchase. You are now set to become rich with the above information.