Places to Buy Penny Stocks Online – How to Avoid Scam?

Buy Penny Stocks Online

It seems like nowadays penny stocks and scams go hand in hand and lots of scam artists are trying to catch their fish in the murky waters of the small caps investment world. Is it possible to buy penny stocks online and actually avoid scam?

The truth is that con artists simply love penny stocks! What’s not to love: small start up investment capital and virtually no obligation to the investors since they do not even have to file financial statements with the SEC if they trade through Pink Sheets, daily publication listing bid/ask prices of the penny stocks. Most of the questionable small cap stocks are not traded over the counter or through major stock exchanges because they were either delisted due to violations or want to say under the radar for a reason to begin with. In addition, with almost zero financial data available and non-existent stock trading track record, it is nearly suicidal to buy penny stocks online if you are not experienced.

If you are looking for places to buy penny stocks online, the foremost important tip to avoid a scam is to deal only with reputable online brokers. Finding a good broker is not easy but with time and a little effort you can land a good online trading partner to start trading top penny stocks. When choosing among a plethora of options, compare online broker commissions, account minimums and volume of trading. An honest and diligent online broker will also provide basic information on how to start trading stocks to help you get going.

If you are brand new in the world of penny stocks, stick to penny stock advice offered in a popular book by Matt Krantz Investing Online for Dummies, 8th Edition. They recommend sticking to stocks traded on major stock exchanges like NYSE or NASDAQ to make sure the companies that are issuing stocks are actually trading in accordance to the SEC regulations, file annual financial statements and are otherwise real companies that generate actual annual income. Did you know that a penny stock is actually any small cap stock that is valued at below $5 per share?

Another option to buy penny stocks online is to trade Over the Counter Bulletin Board stocks or OTC. The OTC penny stock companies are also under the obligation to file with SEC and provide a certain level of disclosure for their clients. This is a great way to protect yourself and to avoid scams when you decide to buy penny stocks online. Another benefit of trading within stock exchange and OTC markets is knowing that most of these stocks are actually high volume penny stocks, vs. extremely thinly traded Pink Sheet stocks that offer very low liquidity.

If you ever see any penny stock recommendations expressed to you through a friend, online forum, e-mail or a TV infomercial, avoid these at all costs. Most of these choices could actually be a part of one of the most popular “pump and dump” stock scheme. In order to pump up the price of a certain stock, dishonest brokers or business analyst, spread downright false information thus persuading naïve investors to buy it. This creates a sharp spike in a stock’s price allowing crooks a superb opportunity to dump their stock to you and other clueless investors.

Doing preliminary research of your own will help you eventually to land awesome penny stocks and avoid bad deals to begin with. Check U.S. Securities and Exchange Commission website to see if a particular company you are thinking of buying into has been mentioned on their website as to potential problems, violations or frauds. Another great resource for research is OTC Markets website which allows prospective investors to gain understanding of a particular company, its strategies, daily standings and check out its icon assigned to it. One of eight otcMarkets icons allows investors to easily identify whether a company is worth looking into or better passed.

Finally, if you are ready to buy penny stocks online, there are great options available out there. Scotttrade and E*TRADE are industry’s leading players when it comes to online stock trading, with minimal commissions and low account minimums, you will be trading in to time. Ameritrade, TradeMonster and TradeKing are other great and very affordable ways to buy penny stocks online with as low as $4.95 cost per trade.