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Buying and Selling Penny Stock

Penny Stock Buy Orders

When you're ready to buy a penny stock (assuming your account balance will cover the purchase price plus the commission), then you're ready to submit a buy order.

Here is the information you'll need to initiate a buy order with your broker:

  1. The penny stock's ticker symbol (i.e.- INTC is the ticker symbol for Intel)
  2. The market where the stock trades (i.e.- NASDAQ)
  3. The number of shares you wish to purchase (also called "volume")
    Note: To avoid additional commission fees, try to buy penny stock in multiples of 100 shares.
  4. The price per share you're willing to pay for the penny stock
  5. The "good until" date. How long will your order remain "live?" The day. Two days from now? The end of the week?

When you're done, your penny stock order might look something like this:

Buy 5000 shares of Extreme Caffeine, ticker symbol BUZZ at 25 cents or less. The stock is on OTC BB and I'd like to keep the order open until Monday the 12th.

Your broker will purchase these penny stock shares for you if the price hits 25 cents or less before the expiration date. 5000 shares will be added to your account and you'll notice that your cash balance has been reduced by the amount that the shares cost, plus a small commission.

Sell Orders

The sell order is just a mirror image of the buy order. Double check the number of shares you own, then inform your broker that you wish to sell. Include the number of shares you want to sell, the name of the penny stock, the ticker symbol, and the name of the stock exchange. The two most important pieces of information on the sell order are the price at which you are willing to sell and the length of time the order is to remain active.

If the price of the penny stock you are selling reaches or exceeds your sell price within the specified timeframe, your broker should complete the sale. The proceeds, minus the commission, will show up on your account no later than the third day after the sale, and the funds are ready for your next buy.

Understanding Bid And Ask

If you went to an auction looking for a piece of art, you'd be prepared to make a BID on the piece you selected. If you had an antique to sell, you'd let the auctioneer know your bottom-line ASKING price. It's similar when you trade penny stock.

You enter your bid (buying) or ask (selling) price through your broker. If there's a match, a trade takes place. In other words someone is willing to sell to you at your bid price (or buy from you for your ask price). There will be many other investors trying to buy or sell the same penny stock at the same time and at varying prices. However, the only price quotes you'll find listed for that penny stock will be highest bid price and the lowest ask price.

The market operates on a "best price" basis. If you're buying, unless your bid is the highest, you'll have to wait until the investors willing to pay more have had their orders filled. Conversely, if you're selling, the shareholders willing to sell for less will have their orders completed ahead of you.

If buy and sell orders for the same penny stock are entered at the same price, they'll be handled on a first in, first out basis.

Unfilled Penny Stock Orders

If your order does not get filled prior to the order closing date, as may happen during a period of light trading, no transaction occurs. If there is no trade, there is no broker commission fee to pay.

Partial Fills

In other instances, you may not be able to buy or sell as many shares as your order stipulated. For instance, if you wanted to purchase 5000 shares of Intel at a certain price, but only 3000 shares were available at that price. You would get the 3000, but not the other 2000. In this example, your order was "partially filled."

If this appears to be the case and it's still only mid-way through the trading day, you can always adjust your order price and increase your chances of filling the rest of your order. There are no additional commission fees to pay. However, if your order gets extended beyond one trading day, your broker will charge the usual commission for each day that your shares have a trade. Buy 10,000 shares over 5 days, that's 5 commissions.

Cancelling And Changing Open Orders

You may choose to cancel or change your buy and sell orders while they are still open. If you have a question about either, your broker can assist you.

Knowing which penny stock to buy is the most important part of all. That's why it is so beneficial to get a subscription to The Penny Stock Insider, by Peter Leeds.