If you’re new to investing, you may be interested in starting small. Often, first time investors choose to build a small portfolio of penny stocks to learn the ropes of trading before putting more money into the pricier stocks.
We know that a lot of visitors to this site are beginning investors. So, in the spirit of being helpful, we’ve put together a bit of advice on how to trade in penny stocks, and which are the best on the New York Stock Exchange.
What is a Penny Stock?
If you look up “penny stock” on the internet, you’ll probably find about twenty different definitions. But each of those definitions will be clear on one thing: penny stocks don’t cost a penny. Generally speaking, penny stocks are any stock which costs less than $1 per share, but this can range up to around $5. Regardless of the price per share, penny stocks are cheap.
Another trait that many penny stocks have in common is that a significant number of them are traded over the counter. OTC stocks aren’t as widely available on online stock trading software, and so will therefore require you to enlist a broker to trade them. Commissions on OTC stocks can be quite pricey, so when all is said and done, you’ve paid well over $10 for your “penny stock.” With that having been said, for the purpose of this article, we’re going to focus on publicly traded stocks which cost less than $5 per share.
How to Buy Penny Stocks
You can buy penny stocks in the same way that you’d buy shares in any other company. You could, as we mentioned, hire a broker, or you can trade through an online service. There are a huge number of online trading apps available to investors, and many have very low commissions. We like Trade.com and Plus500, but in the United States you might have good success with an application like e*Trade or another large company.
The key is to check out the commission structure of the site. Your goal is to learn how to make money playing the stock market, not to lose money to ridiculous commission and brokers fees. It’s important to note here that penny stocks are wildly volatile. Hugely. They can fluctuate as much as 1000% in just a few weeks’ time, and it’s tempting for beginning investors to buy and sell with abandon. If you’re paying huge commissions on trades, you won’t be able to do this without losing a significant amount of money.
The Risk of Trading in Penny Stocks
Penny stocks bought on a cheap commission structure are an interesting and exciting way to learn the markets. But they’ve got their drawbacks, too. First of all, we mentioned that they’re extremely variable in price. What may look like a good buy today can either leave you sipping champagne or throwing a tantrum tomorrow.
But they’ve also got very low liquidity. Penny stocks on the NYSE don’t trade as frequently as bigger companies’ stock, if you feel the need to sell them it may be difficult to do so. They’re also very inaccurately reported. Now, this doesn’t necessarily and always apply to stocks traded on the NYSE, but OTC penny stocks are very loosely reported. The NYSE places very strict standards on what must be reported to investors, but exchanges like OTCBB do not.
With that in mind, be aware that if you trade in penny stocks, you may be putting yourself at more risk than, for example, a managed portfolio through an investment firm. In other words, don’t invest in penny stocks what you’re not willing to lose.
Best NYSE Penny Stocks
Alright, so you’re wondering what the best penny stocks are, and you want to trade on the NYSE. Well, of course you’ll need to do your own research. But we’ll help you out a bit and let you know that tech stocks and energy stocks are trading nicely right now. There are loads of advancements being made in each of these industries, and as new developments are announced, penny stocks quickly become big earners. We’ll leave you with a few examples:
- AU Optronics Corp (NYSE: AUO) – This stock is currently trading at $4.12 per share. The company is a Taiwanese electronics manufacturer, and deals primarily in the manufacture of electronics displays. They also work with developing solar energy products, and both are likely to aid in an increase in the company’s profits.
- Sprint Nextel Corporation (NYSE: S) – You know the name, and it may be surprising to see this on the list of penny stocks. Technically, it’s trading at about $9 right now, but it’s still a cheap tech stock that has potential to rise in value over the next 12 months. The company is currently outperforming both Verizon and AT&T with respect to profits, and is projected to gain 20% this year.
- Vonage Holdings (NYSE: VG) – This is another household name. Vonage became popular in the early 2000s with the release of its internet phone service. It’s recently received positive press from a few sources due to new developments. If the company expands its offerings, it may see an increase in profits.
- Danaos Corporation (NYSE: DAC) – This is neither a tech stock not a biopharmaceutical. Instead, Danaos is an international shipping container owner. The stock is trading right now at $1.65 per share, but the company has been consistently increasing revenue, and analysts are optimistic about its future.
- Dynegy (NYSE: DYN) – You’ll have to keep an eye out for the United States political atmosphere to get a better feel for how this stock will do. Dynegy is a Texas based energy supplier, which owns and operates gas and coal fueled power stations. It’s currently trading at $6.47 per share.
- SunEdison (NYSE: SUNE) – This renewable energy company is currently trading at $.05, so you may want to buy a few shares. This company’s stock prices dropped when it filed bankruptcy, but the Chapter 11 bankruptcy has since been dismissed and the company may soon see its restructure positively impact its bottom line.