Penny stocks are stocks that trade for $5 or less. These stocks are traded mostly in the Over The Counter Bulletin Board (OTC-BB) Stock exchange instead of the New York Stock Exchange (NYSE), The NASDAQ Stock Exchange or the American Stock Exchange (AMEX). Because of the low price and low quality of penny stocks, their prices often rise and fall wildly during trading. They carry greater risk than regular stocks and are issued by companies with limited capitalization. Here is how to buy penny stocks.

The first step before purchasing any stock is to gather much knowledge on it. Go through the internet and visit forums that cover penny stocks. Purchase newsletters and magazines that give information on low-priced stocks. Be aware of the risks while trading penny stocks and the return on investment (ROI) of such stocks. Select a few penny stocks, observe their buy and sell actions on the stock exchange for a few days. This will tell you what to expect when you begin trading in the stocks.

Take the help of a stockbroker to make your stock trading more easy. Full-service stockbrokers demand high fees. There are also discount stockbrokers offering low-priced services but no support. Check factors like execution fees, monthly or annual fees, inactivity fees, low minimum balance and discounts. You may contact your local bank to see if they offer brokerage services on penny stocks.

Open and fund your trading account when you settle on a stockbroker. Do your trade order on the phone with a live broker. Nearly all brokerages will charge a slightly higher commission for this service but, they will catch any errors you might have made, and can answer any questions. Besides, some brokers will even be able to tell you if your order was filled (for market orders only) while you wait right there on the phone.

Choose the types of trade orders. If you want market, you do not know what price you will pay for shares, but you will be assured that the trade will go through. On the other hand, you can set a limit price that you will pay for each share. If there is unsatisfactory selling below that price you may end getting none or only a fraction of the shares you wanted.

Limit orders do require duration, and you will get an additional brokerage commission every day that a part of that order gets filled. To buy 3,000 ABC over 3 days (assuming you only got 1,000 each day at your limit price) would triple your total commission cost. You decide that you want to guarantee to only pay one commission, so you make the order good for the day. This is called a ‘day order.’ You can also choose to keep the order open for days or weeks at a time.
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