Penny Stocks 101

Getting started with penny stocks is simple, and can be fun and profitable.

Man Teaching Stock Market Investing
Man pointing to flipchart to coworkers. Getty Images

Getting started with penny stocks, sidestepping the common pitfalls, and finding the best investments, are all much easier than most people realize. In fact, if you can open an online bank account, you can just as easily be up and running trading low-priced shares.

Before You Begin

Most investors are anxious to get their money into the markets. They want a few hundred dollars to start changing their life.

With that attitude (which is exactly what mine was like when I got started, which resulted in losing 100% within two weeks), you might be heading towards failure.

You should always start with no money and zero risk. Paper Trading is a wonderful method to see how much you would have made (or lost).  There isn't any rush to skip this step, because the penny stock market will always be there waiting for you.

You do not need fancy software, the best broker tools, or the latest apps. You need a pencil and a piece of paper. Paper Trading, instead of jumping in before you can demonstrate (theoretical) profits, is and will be the single best decision you will ever make in penny stocks.

Avoid Common Risks

Sidestepping the most common penny stock risks is very simple.  So simple in fact, that having made a few of them, the 14 year-old version of me feels pretty stupid.

Risk Money Grows Fastest

You have probably heard about using "risk money" with speculative investments.

 Beyond the obvious reasons to keep your rent check and grocery money out of the latest 5 cent penny stock, there is an abstract, albeit widely unknown, benefit.

Investors who feel stress, frustration, impatience, and obsession with their investments tend to act emotionally, rather than meticulously.

 Trading decisions are typically made for the wrong reasons, and derive the wrong results.

Risk money, on the other hand, results in a looser, more patient, and wiser investment style.  With this attitude, better decisions are made. This is both a theoretical truth, and an observed fact we've encountered over the course of many decades and 40 thousand subscribers.

Discount Stock Broker

All you need to trade shares of any kind is an (online discount) stock broker.  Opening an account typically involves filling out a few forms, and most people are up and running within days.  Depending on the policies of the broker you choose, there is a required minimum amount of cash which needs to be deposited.  This ranges from zero to tens of thousands of dollars.

Once the money is deposited, and your account is set up, you will be able to use those funds to buy and sell stock... which leads us to the most important part of Penny Stocks 101.

Find the Best Investments

Whether penny stocks or large-cap Blue-Chip corporations, bonds or real estate, the best investments are the ones which increase in value.  By choosing low-priced shares from among the various investment options, you gain the benefits of quick, substantial price moves.

 Of course, the name of the game is identifying the shares which make moves in the direction you hope!

There are plenty of penny stocks which will rise in price, but it is important to know how they can be found.  Everyone has their own style, a unique learning curve, and independent skill set. 

Stages to Penny Stocks 101

Start smart, use only risk money, and learn how to find the best investments before you begin.  Investing is simple, and even better, it is fun.  When you turn a few dollars into something more substantial, you will be absolutely hooked!