How to Open an Account to Trade Penny Stocks

For many people, penny stocks are an exciting concept.

15:49 25 September 2019

These low-cost shares are an excellent opportunity to get in on the ground floor of some of the fastest-growing brands in the world. Choose the right share, and you could find that an initial investment that only cost you a couple of dollars, puts millions into your future retirement fund. Of course, not every penny stock will be a winner, but these securities are often a great place to test your strategies and experiment with different kinds of trading if you don't mind taking a few extra risks. To make sure that you're ready to start trading in low-cost stocks, one of the first things you'll need to do is learn how to open an effective trading account.

Choosing your Trading Account

A trading account for penny stocks is the tool that you'll use to interact with your broker online. Here's where you'll do your market research, decide which stocks you're going to buy and sell, and even keep track of your positions over time. Brokers across the US and beyond have many different areas that they specialize in. With that in mind, it's best to look for a company that offers specialist skills in penny stock trading if you think that's the route that's right for you.

It's also worth paying close attention to the fee structure that your broker offers. Some companies will charge a commission on a per-share basis, whereas others will require you to pay a certain rate for a particular number of shares. Most traders find that it's easier to take a per-share structure - particularly when they're investing in a low number of trades at once. If you're just testing out a strategy on how to invest in penny stocks, then this could be the right option for you. On the other hand, if you plan on using your account to buy hundreds of shares at once in the right company, then choose a broker that offers a low rate per trade - regardless of the number of shares that might be involved. Find a low enough flat deal, and you might be able to save a lot of money on your overall trading strategy.

Planning your Trading Strategy

Once you've found the right brokerage and trading account for your needs - the next step is making sure that you understand the risks involved dealing in a high-risk environment. Penny shares have a reputation for losing value very quickly. While it is possible to make money trading in this area, there's also a risk that you could lose a lot of cash very quickly too. It's important to keep that in mind when it comes to investing in your new securities and positions.

If you're not sure about your trading strategy yet, consider spending some time on an experimental paper trading account, where you can put your screening and purchasing plans to the test. This will help you to gain confidence in your investment strategies, without putting your money at risk.