Day Trading

There are some basics you need to understand before you learn how to trade penny stocks. You need to understand that this is a profession with rampant fraud and tons of manipulation. You must appreciate that penny stock trading is a serious business involving real risk with real money. In this article, I will explain the basic steps you need to master to execute a penny stock trade.

First up you need to select a penny stock broker. The best known online stock brokers are probably TD Ameritrade, Scottrade and E*Trade with Sharebuilder gaining steam. However, just because they’re the most popular does not mean they are the best penny stock brokers. I suggest considering Zecco if you’re new to the penny stock market.

However you select your broker, be very, very careful you select an established and reputable broker and not some kind of obscure deal maker you find online. It is not uncommon for savvy investors to take advantage of novice investors, especially in the area of penny stocks. So stick with established, known entities.

The next major step – and the step that indicates you really mean business – is to connect your bank account with your broker account. I urge you to setup a separate bank account from your primary checking and savings accounts for your penny stock trading. I also encourage you to not start trading until you have significant capital separate from living expenses in your trading account.

Now prepare the following information for your broker to execute the trade. First, find the quotation service where your broker can identify the stock. For example, is it on NASDAQ or is in the Pink Sheets? Next, define for him the stock’s ticker symbol within its listing service. Then you must specify the exact amount (or “volume”) of the share you want to buy. Keep in mind that despite the term penny stocks, you will likely need to buy in multiples of a thousand shares to keep the brokerage fees reasonable.

Now describe your exact buying price and the expiration date for that price. Sometimes, especially with penny stocks, buying a share isn’t an instantaneous process. The expiration date defines for your broker how long he should keep the order active. Once that date hits, your order expires. This makes it so you don’t accidentally buy a dated stock which you may not want anymore. And then when you sell, you use a limit order to sell.

These are just the very basics of how to trade penny stocks. I encourage you to do your due diligence and practice with paper trading prior to ever putting your money at real risk. Then find a stock broker, connect your account and start executing orders.

For more detail on the penny stock trading process including advice you absolutely shouldn’t begin trading without, read our comprehensive penny stock tutorial: How To Trade Penny Stock.

Link: pennystock-trading.com