How to Trade Penny Stocks

To understand how to trade penny stocks, first you must block out all the hype.  Penny stocks are not cheap despite their name and in fact they require more caution and savvy than standard stock trading.  So the first step to understanding how to trade penny stocks is to ignore anyone trying to sell you hype and hope.

To really begin trading penny stocks, you have to find a broker to help you execute the actualy penny stock trades. Penny stock brokers are just standard brokers who offer better deals than other brokers on executing penny stock trades.  Zecco is probably the cheapest of them all, but you should really consider working with a full service broker like Fidelity until you really know your way around online stock trading.  It may cost a little at first, but the peace of mind will provide immediate value while the wisdom gained will provide lasting value.

If you're really serious about beginning your online trading with penny stocks, I suggest you reconsider.  If you're stubbornly clinging to the dream, then at the very least be very careful who you choose for your broker.  Many broker-dealers out there have a singular purpose to exploit novice investors seeking fast money through penny stocks.

After you have your broker chosen, you have to put your finances on the line.  Well, not really, but this is the big, risky step: you have to link your brokerage account with a bank account.  Create a new bank account separate from your existing checking or savings accounts. Link that one with your brokerage account.  Make sure you have enough money in it to satisfy any minimum requirements set forth by your penny stock broker.   Your processing of how to trade penny stocks is now set in motion.

After you are technically setup to trade, you find some penny stocks. The golden rule of penny stock trading is to never, ever have someone tell you what to buy.  No website, penny stock newsletter or forum should inform you or make your decision for you.  As soon as you think, "Oh this penny stock newsletter assures me this magical stock picking robot will make me rich overnight," than you've begun paving your road to financial ruin.  Seriously, people, don't be such foolish suckers.

To find your own penny stocks, you should familiarize yourself with the Pink Sheets and the OTCBB (Over-the-Counter Bulletin Board). Once you've picked a few interesting stocks, its time to research them with the tools provided by your broker (you did pick a full service broker, right?).  Your broker should help you with these tools.

Once you've picked the stocks, you can put in a "bid" with your penny stock broker. This essentially executes the buy order.  You must specify the volume (the number of shares), the price (your bid), the exact ticker for the stock and your expiration date.  The expiration date keeps your order from being fulfilled after the stock has taken a nosedive and you no longer want it.  At its simplist, this is how to trade penny stocks.