What is a penny stock? A penny stock is also known as a microcap (or nano) stock which normally trades for under $5 per share. These smaller stocks are often offered by upstart and struggling companies as a way to obtain quick cash flow for their business. This is not Coca Cola or Microsoft you’re investing in. These companies have not yet proved they are stable enough to stick around for the long haul.

Are penny stocks safe?

Because of their low cost, you may be tempted to invest in several microcap stocks that look like a good bet. Keep in mind that you cannot just randomly pick a winning stock by your gut feeling. Just like with larger stocks, penny stock investing requires lots of research on the investor side, before putting down any money.

Online, there are several companies that provide stock analysis and lists of their current picks that are formulated according current market trends. It is almost impossible for the average person who has a full-time job to do proper stock analysis by themselves. The speculative nature of small cap stocks is somewhat like riding a roller coaster. Companies you invest in will have their ups and downs.

What should be done before investing in penny stocks?Because these stocks are so much cheaper to buy, you could typically buy 1,000 shares of stock at fifty cents per share for a cool $500. Indeed, this is a lot of shares and if your pick is a good one, you’ll make a pretty profit. However, if it’s a bad one, you’ll lose all of your money. Therefore, choosing the right stock analysis system is really important.  

No matter which stock system you choose, you should still plan on losing money, because no system is 100% accurate all of the time. There are just too many variables that can happen to a company that will be completely unpredictable. Being a successful investor, means you want to have more winners than losers.  Every successful investor also knows not to put all of their money into one stock. You will need to spread out your risk. This means investing minimal amounts of money in several stocks and watching them carefully. A wise investor will narrow their picks down to companies that offer the least risk. Finding these companies will take time and patience.

 Can penny stocks be bought using and online broker?

If you are new to penny stock trading, you will find it extremely beneficial to do paper trading before jumping into the market with real money. You can learn how to use a trading system by making fake trades based on real data, and then keeping score of how well you do. Paper trading is a great way to know whether a particular system is right for you without risking any money.

Once you know what to look for in a small cap company,  make sure that you have reliable resources and training tools by your side so that you have the best possible chance at making profits.  Remember to always do your own research before investing in any stock or other investment.  Most online brokers such as Etrade, Ameritrade, Scott Trade, and the like do allow you to trade penny stocks online.  Etrade may be one of the more friendly ones when it comes to the penny stock investor.