Q:

How do you buy penny stocks?

A:

Quick Answer

The easiest way to purchase penny stocks is to open a brokerage account and use the broker to purchase the stock for you, according to finance site Money Morning. A broker can also help you to avoid many of the scams and frauds present in the penny stock market.

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Full Answer

According to Investopedia, penny stocks are defined either by the market capitalization of the company offering them or by the price of the stock itself. For example, a penny stock is often defined as a stock offered by a company with a market capitalization between $50 and $300 million, while the Securities & Exchange Commission defines penny stocks as those stocks that are under $5 in price.

When buying penny stocks, the most important step is careful research of the stock in question, according to Money Morning. To avoid scams, such as the pump and dump, which involves pushing a stock price upward falsely before selling the stock at an inflated price, careful scrutiny of the stock is necessary. A broker generally does this for customers, but it is crucial that the buyer does a bit of due diligence before making the buy order. Penny stocks, like any other stock, need a firm business foundation to be a successful investment instrument, so examine the products or services of the company, its general outlook and its reputation before buying.

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