How To Buy Penny Stocks

When speaking about penny stock, you are generally referring to any low-priced stock, usually priced below $5. These are the tentative securities of very small companies that are generally traded over-the-counter. Again, this is a general view as they may be traded on the security exchanges. Also, this term would not apply to those corporations that are billion dollar companies with stocks listed under $5. The penny stock refers to small companies and some of them are private corporations with no activity in the market.

If you are interested in investing in penny stock, the SEC rules will require that the broker you are working with first approve you as a customer for the transaction. The broker must then receive from you, the customer, an agreement for the transaction in writing. You must then receive from the brokerage firm a document detailing risks involved in the investment. Also information must be given regarding the current market quote, if any, for the particular stock in question. The brokerage firm must also divulge what their compensation will be for brokering the trade. Each firm must supply their clients with a statement each month which details the market value of any penny stock’s which are held in their account.

One of the most important things to do when deciding on which penny stocks to invest in, is research. It is essential that you do investigate the corporations that you feel will be a good investment. The exploration of the company should include the type of business they are, who their market is and what is the potential for growth in this area. If you are unfamiliar with their specific business, you should become knowledgeable before making any investments. One of the first places to begin your research is with the brokerage firm you are working with. Ask if this particular company reports to the SEC. Ask the firm to provide you with information in writing about the company, its business, and any financial information that is available. Carefully examine these documents to see where the company is headed.

If you still require more information, go directly to the company. If this still does not produce the necessary material you are looking for, you can contact the state securities regulator and request information regarding this specific company.  Investing in penny stocks could have huge potential and the rewards can be quite lucrative, but if you have no idea where the company is headed and what drives their sales, it will be hard to predict whether or not the stock will increase.

Once you feel comfortable about the company and feel that investing in penny stocks is for you, your broker will help you carry out the transaction. Investing in penny stocks can be exciting and rewarding. When looking at the potential to earn quick gains in penny stocks, it’s hard not to invest in them. The impending excitement of a quick turnaround keeps people coming back to invest more and more in penny stock.