Buying Your First Penny Stocks

Investing in penny stocks is not as hard as it sounds. This article will help you learn the basics of penny stocks investment.

The Stock Broker

So you think you are ready to dip into the stock market? The first thing you should do is find a stock broker. A stock broker is a person or company that does the buying and selling of penny stocks for you. Once you have chosen a stock broker, open an account with him/her the same way you would with a bank. Load your account with sufficient funds.

When you buy shares of a company, money will automatically be deducted from this account and turned into company shares. When you sell shares of a company, your company shares will be turned into cash and deposited in the same account.

There are two types of stock brokers: a discount broker and a full service broker.

A full service broker will give you recommendations on potentially good stocks to invest in, and he will manage your stocks investment portfolio for you. Full service brokers charge very high commission fees and are usually suitable for investors with large amounts of money to invest.

Discount brokers are different. A discount broker can answer any questions you may have about investing, but they offer few, if none, of the personalized service you can get from a full service broker. Discount brokers do not normally make stock recommendations or give you portfolio advice which is why they charge less, roughly $10 for every buy or sell transaction compared to $100 with full service brokers.

If you want to invest in penny stocks where profits are not as huge as regular stocks, a discount broker might be the more practical choice.

Placing a Buy Order

After performing due diligence, you have now decided you want to acquire shares of a particular company. Call your broker and tell him/her you want to place a buy order. Make sure your account has sufficient money to pay for the shares and your broker's commission fee. Included in the buy order is the amount of shares you want to buy, the price you are willing to pay for these shares, and the duration of your order. Penny stocks are usually purchased in multiples of 1,000 shares. You may choose to keep your order active for just one trading day, or specify a date when it expires.

Placing a Sell Order

You feel you have made enough profit from the penny stocks you have in your portfolio and you are now ready to liquidate them, or convert your assets into cash. Before placing a sell order with your broker, check your account to find out how many shares you have. Tell your broker how many shares of which company you wish to sell, the price you are willing to sell these penny stocks, and the duration of your order. Once your shares are sold, money from the transaction should be deposited into your account within three days.

Sometimes you place an order to buy stocks at a certain price, but the shares did not trade at that price during the duration of your order. There will be no broker fee when no trade transaction takes place.

There will also be cases when your order will only be partially filled. You may want 8,000 shares but only 3,000 were available at the price you had specified. If you want to go after the remaining 5,000, you can adjust the price of your order to ensure you acquire all the shares you want. You will not be charged extra broker fees if you change your price within one trading day. Buy and sell orders for penny stocks can always be canceled or changed during their duration.

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