Penny stocks offer unique opportunities to day traders. For example, they are more volatile than the high-value stocks, you require relatively smaller accounts to start trading them, and you can a lot more easily predict their price movements, especially owing to the informational inefficiencies that exist in the companies behind them.
The first and most important step towards being successful with penny stocks is educating yourself on how to trade them. In particular, you need to learn how to identify opportunities that come up throughout the day, and also how to design effective trading strategies.
For in-depth foundational information, you should read Timothy Sykes’ day trading guide for beginners. As you learn how to trade penny stocks, you most likely are going to ask yourself “where can I trade penny stocks?”
The primary interface between a trader and penny stocks
This is a critical question when it comes to trading penny stocks in particular, because by definition, penny stocks are not supposed to be traded on the exchanges. That means you can’t buy and sell penny stocks on the New York Stock Exchange (NYSE) or NASDAQ.
Meanwhile, in addition to executing trades, you need to follow penny stock prices. You also need to follow news that affects the penny stock prices, which is the only way you are going to make profitable trades.
To trade penny stocks, the stockbroker is your primary interface with the market. It is through the stockbroker that you can buy and sell your penny stocks. In other words, penny stocks are primarily traded over the counter (OTC).
How it works is that you create or open an account with a stockbroker and deposit some money for purchasing the stocks you want. Once you identify a stock you want to buy, the stockbroker will look for offers that match yours and facilitate the transaction.
Your stockbroker, especially those that operate online, may also provide you with tools you need to monitor the market. However, there are third-party private companies and networks that offer this service as well as listing penny stocks.
As for news affecting the penny stocks, you have to go elsewhere.
Reading and watching the business sections of the mainstream media can be helpful. Unfortunately, the mainstream media gives news about penny stock companies very little attention.
You can increase your chances of getting valuable news by joining online penny stock trading forums, such as social media groups and following specific social media accounts.
Another place to look for handy information is on press release blogs. Most companies, including those behind penny stocks, announce events and developments through press releases. You can get a lot of breaking news that the mainstream media ignores there.
It is also beneficial to watch the websites of the regulatory bodies such as the Securities Exchange Commission (SEC). Nowadays, most filings are almost automatically published on the websites, and many times that happens before the press release from the companies go out.
However, if you don’t have the time to follow all these sources, you could pay to get a refined report delivered to your email box, for example. There are a few entities, especially online, offering this service.
Now, back to the question of where you can trade penny stocks.
Where else you can trade penny stocks
It is not only through your stockbroker that you can buy and sell penny stocks; there are several other places where you can buy and sell penny stocks.
Over the years, stockbrokers have created networks through which they help their clients buy and sell penny stocks. There are also third-party companies that coordinate transactions that involve various stockbrokers.
The most known of these platforms include OTC Markets and the OTC Bulletin Board. They work in such a way that if a stockbroker has a request and they can’t fulfill it, they can (through the platform) talk to other stockbrokers who can help them complete an order. They also provide some of the data that traders need.
While penny stocks are defined partly by the fact that they cannot be listed on an exchange, many exchanges indeed do accept to list such stocks. For example, many exchanges outside the U.S. do indeed have what would be considered penny stocks as part of the stocks whose trading they facilitate.
This is especially given that the concept or category of penny stocks was created by SEC, a U.S. regulator. The specifications don’t apply for exchanges in other countries.
The most immediate way you can trade penny stocks is through your stockbroker. You can also do it through third-party platforms that facilitate transactions amongst many stockbrokers. Outside the U.S., you can trade penny stocks on exchanges.