How to find penny stocks to invest in?

Look for the exchange While some penny stocks may be found on the major exchanges such as the Nasdaq and NYSE, they often do not meet their listing requirements. Instead they can be found on over-the-counter bulletin boards and pink sheets which generally involved increased risk and exposure to price manipulation.

How to find penny stocks with good fundamentals?

Conduct thorough research on company's financials, management team, & operations. Seek out penny stocks with proven track record of revenue growth, profitability, & low debt-to-equity ratio. Assess industry trends & growth potential of company before making investment decision.

How to find penny stocks before they explode?

One of the quickest ways to identify a spike in the making is to start by using your stock screener to find stocks that are already moving . You should be watching for news catalysts. With penny stocks, there are a lot of information inefficiencies.

How do you approach penny stocks?

Investing in penny stocks will often result in losses. This is because most penny stocks are small companies that are not well established, so investing in them is highly speculative. Only invest money you can afford to lose, and never devote more than a tiny percentage of your overall portfolio to penny stocks .

How to tell if a penny stock is going to rise?

Check the Fundamentals So when researching penny stocks, you should carefully weigh any potential gains versus fundamental factors underlying the company: its debt, cash flow, buyout potential, and Porter's Five Forces of Competition among others.

Do penny stocks ever succeed?

Can you make money with penny stocks? Yes, you can make money with penny stocks , but you can also make money playing the lottery, though you probably won't. To make money in penny stocks, you have to be able to separate the good companies from the bad, and that means you have to be able to analyze companies.

How to make money on penny stocks?

Once you find the stocks you want, buy where you think other traders will enter, know when to sell penny stocks, take quick profits, and adjust the stops for small gains that add up over time . You may get lucky and have a big win on occasion, but most of your money will come from these smaller trades.

How to know which penny stocks to buy?

When trading penny stocks, it's important to find a company that has a strong grasp on its share structure because consistent dilution erodes the value of the shares held by existing owners.

Where are penny stocks found?

Penny stocks are traded on the OTC Bulletin Board (OTCBB) or the OTC Markets Group .

Are penny stocks illegal?

Penny stocks are legal , but they are often manipulated. Penny stocks get their name because of their low share price. Any stock trading below $5 a share is generally considered a penny stock.

Has any penny stock made it big?

Sure, some penny stocks turned out to be massive success stories, like Apple, Ford Motor, and Monster Beverage . Find a similar success story like those top penny stocks, and you stand to make a fortune. However, you have to be willing to do the research to find them in a sea of duds.

How to Find and Invest in Penny Stocks (2024)

Investors with high-risk tolerances often turn to penny stocks, which are defined as companies trading at a share price below $5. But as their name suggests, such stocks may trade for less than $1, allowing investors to hold thousands of shares for relatively small amounts ofcapital. And when the price spikes to multi-dollar levels, investors stand to gain handsomely.

But such stocks could just as easily fall to zero. Not surprisingly, penny stocks are generally considered to be highly speculative because of largebid-ask spreads, smallmarket capitalization, and lack ofliquidity. This article details guidelines to help investors navigate the often thorny penny stock minefield.

Key Takeaways

Penny stocks are those shares that trade below $5 per share, and as low as a few pennies per share.
Many penny stocks are traded via over-the-counter (OTC) platforms such as the OTCBB or Pink Sheets, as they do not meet the listing requirements of major stock exchanges.
While more volatile and risky than exchange-listed stocks, penny stocks can sometimes provide good opportunities. Because they are more loosely regulated, however, beware of scams and price manipulation schemes.

Penny Stock Platforms

To trade on majorstock exchanges like theNew York Stock Exchange andthe Nasdaq, penny stocks must satisfy a multitude of speciallisting requirements. For example, according toNasdaqRule 5550(a), equities must maintain a minimumbid priceof $1 per share. Consequently, literal penny stocks that cost under $1 per share are primarily traded on the over-the-counter bulletin board (OTCBB) and through the Pink Sheets, which is merely a quotation publisher. And due to the fact that Pink Sheets stocks are not registered with the SEC, they’re inherently riskier investments.

Selecting a Broker

When shopping for a penny stockbroker to execute trades, theirfee structures demand thorough consideration. Brokers who chargecommissionson a per-share basis are not the best choice for penny stock investors who purchase large amounts of shares. Contrarily, brokers who charge flat fees make greater fiscal sense. Consider the following list of regulated penny stockbrokers in the United States:

ChoiceTrade: ChoiceTrade trades penny stocks on the Over the Counter Bulletin Board (OTCBB)and Pink Sheet markets, and offers two distinct plans. Stock Plan-A customers receive commission-free stock trades, while Stock Plan-B customers pay $5 stock trades. For all other trades, ChoiceTrade charges a $7 flat fee. An additional $0.0007 per share charge applies to shares over 10,000.
Charles Schwab Corp:Schwab offers penny stocks trading through its standard stock trading accounts, where one can trade Over the Counter Bulletin Board (OTCBB) and Pink Sheet securities online through the Schwab website and mobile app. The penny stock brokerage charges are $4.95 per trade.
Scottrade: Scottrade offers penny stocks trading at a flat base rate of $6.95 per trade, plus 0.5% of the trading principal on stocks under $1 per share. Scottrade offers research and screening tools, including real-time quotes, advanced stock screeners, market news, and analyst reports.
TD Ameritrade:(AMTD) accepts orders for penny stocks listed on OTC Bulletin Board and Pink Sheet securities. These can be traded through the standard equity trading accounts offered by TD Ameritrade. The standard brokerage charges of $6.95 per tradeapplyto penny stocks.

Charges and More Charges

Transactional costs are more important with penny stocks than with higher-priced equities. Let’s assume you intend to buy a penny stock currently trading at thecurrent market price (CMP) of $0.10 per share, and you expect the price to double to $0.20 for a quick and tidy gain. If a broker’s commission structure effectively charges you $0.05 on each buy and sell leg of your trade, the profits are effectively erased. For this reason, it’s vitally important to consider fees, before signing on with a given broker.

Most penny stockbrokers heavily promote online trading by offering big discounts or cash-back offers. But it’s vitally important to read the fine print and learn the following points:

Is short selling allowed?Although short selling may be bound by regulatory requirements, some brokers disallow short selling in penny stocks, as an additional self-imposedrisk managementmeasure. Those allowing short selling may need to maintain higher margins.
Is there a delayed website response time and a long telephone hold time?Due to the high volatility associated with buying and selling penny stocks, traders may experience jarring price changes in the mere minutes they’re waiting to execute trades.
Does the platform offer built-in tools?Traders who require access to dedicated research tools, streaming data feeds, andtechnical indicators needed to make trading decisions should be aware of the potential extra costs of these special features.

Avoiding Penny Stock Scams

Investors who are promised high returns for low costs should be on the lookout for the following red flags, in order to avoid fraudulent deals:

Unofficial internet/email promotions
Promotions brokers offer through boiler roomtelemarketingcalls
Vaguely-labeled newsletter and online forums touting so-called "hot tips."

Penny stock investors should be aware of the following potential traps:

Pump and Dump schemes: This is when promoters claim access to insider information in their efforts to inflate the prices of earlier purchased low-cost lots, that they subsequently attempt to offload for high profits. Gullible investors who act on these tips may end up saddled with high-cost investments that they'll have trouble unloading.
Short and Distort: This is a variant ofpump and dump, essentially working in the reverse direction. Promotersshort sell penny stocks at high prices and then promote negative news about the stocks in a strategic effort to lower the prices and square off their positions for high profits.
Long-term averaging techniques: A cyclical scheme where investors are advised to continue accumulating a penny stock with each price dip, with assurances ofwindfall profitsonce the stock prices take a positive turn.

The Bottom Line

Penny stock investing can be precarious and isn’t for everyone. But those who are willing to stomach the risk should first find a broker, fund an account, and pay vigilant attention to pricing moves. Careful investors who steer clear of fraudulent deals may see substantial profits in the future.