How to buy a penny stock

Novice traders often think that the process of buying stocks and especially penny stocks is an action that doesn't require knowledge. While easy and simple, placing an order to buy shares in a penny stock requires a bit of knowledge. One of the big and sometimes costy mistakes is to place a buy "at market" order in illiquid penny stocks especially the pink sheet stocks. Many times the traders would place a market order to buy shares in a penny stock at a certain price and he/she would be shocked to find out that his order has been filled at a much higher price. This is because when the order hit the market, the only offer at the Ask was at that high price and since the order did not mention any specifis or conditions, the order got filled out.

another costy mistake is when a trader places a "buy-limit" to buy at a certain price. This order means that the trader is willing to buy when the price is at a specific price or less, any price above this level should not trigger any order entry. While this type of order is much better that the ment is e"market order", however, it is missing an important element. This element is putting the condition "All or none" with the buy-limit order. This will insure that you will be buying all shares if they are all available at that specific price. If they are not available, no order would be triggered. For example, if you place an order to buy 10,000 shares at 15 cents and checked the condition "All or none" and the price of the stock hit the 15 cents on the Ask but the shares offered at that price at that specific moment in time was 9000 shares, your order won't go through. this condition is very essential when trading high risk stocks. Failing to choose it, would expose you to events you might not like. For example, If the order mentioned above did not have the condition "all or none" and the price hit the 15 cents share but this time, the available shares were 100 shares. Your order will trigger and out of the 10,000 shares that you wanted to buy only 100 shares are bought. Imagine now that the price immediately increased to 20 cents and never came back to 15 cents. Now you are holding 100 shares that are worth almost nothing. In this specific situation, if you sell the 100 shares at 20 cents, the profit would be $5. If your commission to buy and to sell was $20, then you have just lost $15.

To learn how to trade penny stocks professionally, check out my book here.

How to Buy a Penny Stock