How To Trade Penny Stocks

If you are planning to trade penny stocks then the first thing you need is to search for any online Stock Brokers that will offer you trading or buying a penny stocks or Over-the-Counter stocks. Make sure you check the Broker trades in penny socks before opening an account.

Online brokers like www.zecco.com should be your first port of call.

Visit our sister site www.marketcapmania.com for full reviews of these online stock brokers.

You must open an account of one of these stock brokers and find your penny stocks online. You can open account with as many stock brokers as you want.

In most securities transactions, your broker acts as your agent, arranging a transaction directly between you and a third party for a small commission. In some instances, the broker has the security you seek to purchase on their own books in which case it would be acting as a principal and makes their money on the spread rather than commission.

A sizeable portion of penny stock trades are principal transactions, and an investor should be alert to the potential conflicts of such transactions.

Penny stocks do not each have a single price at which they are bought and sold, but a number of different prices. The first difference is between the bid price and the ask price. The bid price is how much someone is willing to pay for the security, or the price at which you could sell your shares. The ask price is how much someone will sell their securities for, or how much you will have to pay.

Another factor to keep in mind when evaluating price information about penny stocks is that there are two “bid” and two “ask” prices, the inside and outside bid and ask. As a general rule, the price you will be interested in will be the outside bid and ask, or the lower bid and the higher ask, as those are the bid and ask prices to public customers.

The last pricing factor concerning penny stocks is called the mark-up. A broker-dealer who has held the security in its account and subject to the risk of market price fluctuation, may mark the price of the security it sells to you up by a certain percentage, on top of the spread.

This is to compensate broker for maintaining inventory sufficient to supply demand for an orderly and liquid market.

Although it is no guarantee of a good price, you are more likely to get a better price in an agency transaction using a broker-dealer that has no interest in the transaction, due to the pricing factors above.

Updated: November 19, 2013 by admin