Where to Buy Micro Cap Stocks
If you’ve watched Wolf of Wall Street, I’m sure you’ve heard of penny stocks. Although they probably won’t make you rich, they can produce a fair bit of income if you do your research properly. Unlike stocks that trade on regular exchanges, penny stocks mostly change hands through online brokerage systems like Questrade. It can be a little more complicated than traditional trading, but this guide will help you learn a little more about micro cap stocks and where to buy them. For the purpose of this article I will be referring to micro cap stocks as the more common term penny stocks
What are Micro Cap Stocks?
The standard definition of a penny stock is any stock that is below $5. In other words, these stocks are only traded on OTCBB and Pink sheets. Penny stocks are often bought in bulk and seen as high-risk investments. They have low liquidity, and are volatile in nature.
The Risks Involved
Penny stocks are viewed as high-risk investments. Because they represent companies that have little or no track record (more often than not, small start-ups and new businesses) there is little data to predict how they will fare in the future.
Adding to their high-risk is their low liquidity. Once you have bought stocks, it can be difficult to sell them in the small market place. This means you can get stuck with useless stock of very little value.
Perhaps the biggest risk of all is that you could be investing in a bogus company. Many fall for get rich quick schemes that rely buying share of shell(fake) businesses. These ploys use a pump and dump’ strategy to get traders to buy bad stocks. Make sure that the company you are investing in exists and at the least has submitted SEC documentation.
Can I make Money from Micro Cap Stocks?
You most certainly can, but many traders liken them to gambling. However if you do your research properly and really make sure you know a good deal about the company you are investing in, then there is less risk. Watch the stocks carefully and don’t spend what you can’t afford to lose. If a company is transitioning from private to public, their stocks could quickly soar and make you a handsome profit.
Where to Buy Them
If you are looking to buy penny stocks, you have two options. You can choose a safer and more expensive route by using a traditional broker that caters towards penny stocks. The more popular choice is to use an online brokerage system like Questrade and buy them yourself. Because penny stocks are low value, they lend themselves to a more DIY approach.
If you’d like to go through a broker, then it is important to choose one that specifically deals with penny stocks. Low start-up costs and minimum transaction fees are what you should be looking for.
● Scottrade – They have been around for 25 years and offer great support for people just starting out. Their fee per stock trade is a little higher than most, but they’ll look after you.
● TradeKing – They have no minimum account requirements which is great for those who don’t want to spend a lot of money. They also offer low flat trading fees, which is great if you are doing lots of trades
Online brokers provide you with the raw, basic service and not much else. There are no frills or added value and that is why their commissions are cheap. They permit constant monitoring of price movements.
● E-Trade – $500 initial investment and $7- $10 per trade
● TD Ameritrade – Sleek website, and no start up account investment. Flat fee of $7 per trade
Once you’ve signed up for an account, you can start looking at which penny stocks you’d like to invest in. Each broker has a different way of presenting information and recognising potential high-yield investments.
What Not To Do:
Do not fall for scams and fake businesses. Always research what you are investing in thoroughly.
Do not put all your money on one trade.
Never lay down more than you can afford to lose. Penny stocks are high-risk.
Don’t fall for the pump and dump ploy. Watch for abnormal stock activity.
Penny stocks are for traders looking for high-risk, high-reward scenarios. It is likely that you could lose everything, but it is also possible to make massive gains.
Ifyou are serious about investing in penny stocks, then protect yourself from scams by researching before you buy. Do not buy stock from a company that does not submit SEC files. Penny stocks are not a reliable option for those looking at retirement investments, but they are still a fast paced, fun trading opportunity that can give great returns.