Penny stocks represent common shares of small, publicly traded companies. They are so named because they are cheap to buy -- often less than a few dollars. This makes buying penny stocks ideal for the investing rookie. Fortunately, buying penny stocks electronically is easy and quick to do. However, the fact that penny stocks are inexpensive and can be easily purchased and sold online does not mean that they're without risk. Quite the contrary.
1. Find an online discount broker that you like. A few very popular ones are Etrade.com, Ameritrade and Scottrade.com. Check out their sites to find out what they charge in commission and fees. Also, figure out which brokerage has the easiest platform for you to use if you're not too Web savvy. You'll need to open an account with your e-brokerage of choice by creating a log-in and password and setting up a profile.
2. Put cash in your online trading account. This is the money you'll use to buy your penny stocks electronically. You can fund your account by wiring money into it or via a paper check.
3. Find penny stocks that you would like to purchase. Less information is available on penny stocks than on stocks of large publicly traded companies. However, the Internet is filled with websites, bulletin boards and forum discussions about penny stocks. But, don't trust others' advice -- research the companies you're considering investing in to ensure you find their products or services credible and believe the company will grow, because that's what will ultimately add value to your stocks.
4. Enter the trading symbol of the penny stock you want to buy into your online stockbroker's trading system. Specify how many of the penny stocks you want to purchase. Hit the appropriate button to confirm the transaction and have the funds for the purchase taken from your account.
5. Watch your penny stocks carefully to see whether they're increasing or decreasing in value. You may want to sell quickly if you see them go drastically up one day. Penny stocks are known for being much more volatile than other types of stocks, so keeping a close eye on your penny stocks can help you prevent or minimize losses.
- Jupiterimages/BananaStock/Getty Images