Finance

How to Get Started with Penny Stocks

Registered Representative or a stockbroker is an investment advisor who executes buy and sell orders for stocks and other securities through a stock market for a fee or commission. Stockbrokers are usually handles transactions for retail and institutional customers associated with a brokerage firm. There was a time when only the wealthy could afford hiring a broker to access to the stock market. In recent times however the advances in technology gave rise to discount brokers which allows small investors to trade the stock markets at a small fee with the help of stock brokers over internet. Stock brokers play a vital role in stock investment.

Penny-Stocks

A stock broker has clear idea about where an investor should invest his money and helps the new investors to invest their money in the proper way. The stock brokers generally advises a new investor not to invest money in penny stock as penny stocks are subjected to more market risks as it is illiquid in nature. A leading stock broker is found to guide his client to invest money wisely so as he does not suffer loss. Buying a penny stock is not suggested by a broker as the selling of penny stocks are very difficult. There are also high risks of having insider share holder which can lead to fraud.

According to the stock brokers penny stocks can be divided into two distinctive categories:

  1. Highly Pumped Penny Stocks:

These are highly pumped up penny stocks usually seen on media. One should beware of these companies and should not buy into the hype as this gambling won’t let you win.

  1. Unknown Thinly Traded Penny Stocks:

The stock brokers do not ask one to buy it directly but ask them to watch carefully over the market about the stock. These penny stocks are the champions of penny stocks.

A leading stock broker can be found having a clear idea as to when one investor should invest in penny stock without having much of loss and can be benefitted by the investment. These are the suitable time that a broker suggests the investor to invest money in the penny stock:

  1. Having a 30 day volume average is a way greater than 52 weeks which means that one should follow the rule of thumb and plan to buy 1/10th the average amount of volume of shares in a particular day.
  2. When there is increasing or decreasing in the price of stock one should invest. This shows that the stock is flowing.  In order to catch the stock at a good price one should follow the average cost method.
  3. When significant news is developed about new partnerships or new customer milestone that has been reached or may be a new technology or research has been developed indicates that the company is going somewhere better and has a flow. There are chances that and that the valuation of the company would go up.  This is the right time when a broker would want investors to invest money in penny stocks.