Online stock trading was born out of the computer and internet technology.  Prior to online stock trading, investor will need to contact his broker to buy or sell stocks.  Brokers normally advice investors on which stock to buy or if it’s a good time to sell.

Online stock trading gives investors more power in controlling their investments. With financial trends and charts available in the broker’s site as well as other internet sites, the investors can make their own wise decision anywhere and anytime they want.  Information previously available only to brokers is also now available to investors.

How will you start an online stock trading? Access an online trading game, this will allow you to get a feel of the online trading without losing money.  Make use of this opportunity to learn the process and reduce the risk of losing in actual online stock trading.

The next step would be to research for an online stock trading site suitable to your investment needs, be it for long term or short term.  Below are some examples of this site.  I am not recommending these sites but just an example for you to look around.

www.scottrade.com

www.tdameritrade.com

www.gcitrading.com

These sites will allow you to research the market, monitor its movement and finally buy or sell a stock.  You don’t need to talk to anyone to close the deal.  Just follow the instruction and the system will let you complete the transaction by yourself.

But it is not as easy as it sounds.  This process has its pros and cons. Of course, the pros are you can trade in the comfort of your home or office, cheaper broker fee and more control over your investment.  While there are several cons that you need to consider as well. You might not get the best stock price available or the market order as this will give broker lower commission.   Instead, you will get a limit order or whatever you as a client requested to buy or sell at a specific price and unit of stocks. This means that you may not get the best deal.  Network glitch is another concern.  You might unknowingly buy a stock twice.  Do not repeat the procedure if your transaction is not getting through.  There might be a network traffic that is causing the delay.  Most online stock trading sites has a function that provides status of your transaction.

A word of caution, make your online stock trading safe.  Internet connection is vast and complicated. There are always scrupulous people out there waiting to make their move against your money.  Several incidents where documented wherein passwords are captured after an investor download and infected application from the Internet or respond to phishing e-mail message that pose to be from a financial institution and request for sensitive information.  The scammer will then hack into your account to steal your money.  As much as possible do not access your online stock trading in public computers.

The technology helps us conduct stock trading easier and faster, but be reminded that online stock trading is just a tool and it does not reduce the risk in stock trading.  This does not replace the fact that investors should be knowledgeable in stock trading to be successful.  Don’t forget the basics, educate yourself by reading books, articles and internet sites, have a trading strategy and study the company before buying any stock.

So, how will you spot a hot penny stock? Hot penny stocks are stocks that carries a high risk rate with an extremely low price per share.  These hot stocks are normally priced well below $1 per share and can provide incredible margin if you choose the right one.   But don’t get too excited, these stocks are highly unpredictable that can either give you high returns or completely wipe you out.  With this reason, only invest whatever amount you can afford to lose.

Although hot penny stocks are priced so low and can be bought in large number, this is not the secret to guaranteed riches.  Sometimes demand for penny stocks is falsely created by companies who resort to unethical means to increase the stock value for their own greedy purpose.

These hot penny stocks do not expose the real value of the company.  Some of them are still in a developing stage trying to gain a grip in their industry.  Companies need to do their best to increase the value of their stocks to be acknowledged as hot stock for the investors to notice.  They need depict that the company is well established by consistently earning profits which is not simple and will take a while as this is dependent on the company’s growth.

Penny stock company should at least have the following to be considered hot penny stock:  Good stock structure, it has Outstanding Stock and Float and Authorized Shares, valuation and position of the company, SEC listing, turnover and financial record, transfer agent transparency and good business structure.

For example, if the company maximizes the outstanding stocks and closes to Authorized Shares, it means that there is no strength in stocks.

Find out how many shares the company has in its float.  The float is the numerical number of shares currently being traded.  Companies listed on the Pink Sheets usually do not make this report public, but is available in other sites.  It is usually mentioned on articles written about the Company trading penny stock and in the news.  This information can also be found in various internet sites.

Beware of red flags that the company or its investors are just using the penny to stock for their own gain or for fraudulent act.

Here are some of the examples of documented fraudulent act published in New York Times on February 16, 2003.

“On Jan. 31, 2000, Artley T. Bernstein published the first of several articles questioning whether Wellness Universe, a small health services company, was really the target of a $1 billion takeover bid, as it claimed. Eleven days after the first article, regulators halted trading in the shares, and three months later, the company’s founder, George Pappas, was indicted in Manhattan. In January 2001, Mr. Pappas pleaded guilty to charges that he concocted a phony takeover to drive up the stock price so he and his family could sell for a quick profit of $2.3 million. He is awaiting sentencing.”

“In September 2002, Mr. Bernstein questioned the growth prospects claimed by the Vector Holdings Corporation, whose primary business was a stuffed-potato booth at a Florida shopping mall. A month later, the Securities and Exchange Commission accused the company, its president and its transfer agent of violating securities laws — in part for not disclosing that the president, Allen E. Weintraub, had a criminal record. Mr. Weintraub and the companies have settled the cases without admitting wrongdoing, but the penalties have yet to be determined.”

Needless to say, investing in hot penny stocks is riskier than blue chip stocks.  Diligent research of the company, its product, would be product or promised development is essential to reduce the risk.  Study the trading chart for a few days as it will offer valuable information before investing.

Penny stock is commonly defined as any stock that is trading for less than one dollar.  Some defines it as any stock below fifty cents or a stock less than a dollar that’s trading off a major stock exchange.  Others consider the stocks traded in “Pink Sheets” and “Over the Counter Bulletin Board (OTCBB)” as the formal penny stocks.  It does not really matter where it’s being traded because the defining factor is the price of the stock.

Investors also use the terms nano, micro, and small caps to refer to penny stocks.  Penny stocks are stocks from up-and-coming companies with small capitalization but have limitless potential which might result to higher stock gains if and when that potential materializes.  Most penny stocks have a market cap of less than $500 million and are highly speculative.

You only require a small initial investment to buy penny stock.  Lower investment requirement does not equate to low risk investment, it only means you can start small. The risk is that less information is available to evaluate the company unlike with larger company that has stocks trading at more than a dollar. These companies have their reports filed with SEC available for your review before investing.  You have to spend more time to study penny stock companies to reduce the risk.

Ensure that a penny stock company has made their financial report available to the public.  Answer the following questions when conducting your review; are the financial statements certified by auditors, does the company have enough money to keep operating?

The minimal requirement being implemented by Pink Sheet and OTCBB increase the risk in investing to penny stock. There are no auditing standards, no notification in change of ownership or major changes in the corporation that make penny stocks vulnerable to fraud. This makes penny stocks to have limited liquidity.

Penny stocks limited liquidity can make stock prices sharply change by increasing rapidly or crashing suddenly without reason.  It can also be easily controlled and manipulated by third partied and the corporation’s management.  Its low liquidity often also results in difficulty to find buyers of penny stocks.

With the risks involve, investors’ still find penny stock attractive because they can invest small amount with several companies which lessen the risk of losing.  You may be gaining from one and losing from the other but at the end of the day still make a profit.

Penny stock is also a good training ground for first time investors as it only requires a little initial investment.  Earning will boost your morale while it will not hurt as much if you lose.

Now that you have decided to invest in penny stock, when is the best time to sell? Timing is the key.  Monitor your investment closely; if you wait too long, the stock value might drop.  If you’re anticipating that the value will still go up, then just sell partial of your stocks.  In this way if the stock value goes up your gain increases and if the stock value goes down you reduce potential loss as you already cash out while the stock value was high.

Some investors are using their emotions in cashing out. They worry that the stock will crash and then panic and sell too soon.  Keep your emotions in place and decide based on information you gathered.

Re-invest your original investment plus your profit.  Higher investment will provide you more leverage and flexibility. You might lose in your second investment but still secure your original investment by cashing out before the stock value falls down too low. Perform the same level of diligence in selecting your next penny stock investment.  Don’t be over confident just because you succeed in your first venture.

Invest wisely.  Conduct ample research about the company to determine if they can deliver what they promise.  Monitor your stock and sell at the best possible time.  Remember that risk is only present if you do not know what you’re doing so it’s a good idea to learn first how the penny stock trading system works before investing.

Another good option is stock trading. You may say I don’t know about stock trading and I’m not a business techie person.  Here are some stock trading tips to help you understand how stock trading works.

Learn to read simple financial statements to determine if the company you’re interested in is stable and has the capability to grow.

Open a mock up trading account, this allows you to simulate buy and sell of stocks.  You will learn when to buy and sell stocks without losing money.

Contact a reliable broker.  Inform the broker of your investment plan.  Do you intended to invest on short term or long term basis.  You should also have an investment goal.

Read business news articles for stock trading tips on which companies are doing good as well as companies in trouble that you should be aware of.

Visit financial sites to familiarize yourself with market trends, financial climates and other business news.

Start small.  Invest with an amount that you are ready to lose just in case you made wrong decisions in your initial trading.  In stock trading, you can only lose up to your investment amount.  I invest a small amount in my stock trading, monitor the stock movement on a daily basis.  I made a little profit in my first attempt. If I ever I lost, I am ready to consider this as a tuition fee or investment to new learning.

When to buy? You need to determine the following before purchasing a stock: Is the industry stable? If it’s going up, how high will it go? If it’s going down, how low will it fall? Is there a possibility to rebound? What is the product of this company and is it profitable?

When to sell? There are basically two reasons why you want to sell your stocks.  First, the reasons you invest in that company no longer exist.  For example, you buy a stock because you believed in its CEO; you may want to sell once that CEO leave or replaced.  Or the company promises a new product that is above in its industry.  You may need to sell if the new product did not materialize.

The second reason to sell is if you reach your investment goal or acceptable losing level.  Investors are sometimes blinded by greed and still hopes that their stocks will continue to go up instead of selling after they reach their investment goal.  In the end, they either loss or earn little than they should have if they sell early.

The acceptable losing level varies based on investors.  Many set 25% as their losing level.  You don’t want to lose all your money by hoping that it will still rebound. If a stock falls 90%, it has to rise by 900% to rebound to your buy price which is almost impossible.

There are several reasons why you should not buy a stock; you use their product, a friend or relative work in the company, the stock was recommended by a friend or relative, you receive a hot tip through email or text message, somebody you know made a killing in their investment and others.

I hope that these stock trading tips will help you to earn in stock trading.  Investment in any form is risky.  The risk comes from not knowing what to do.  Knowledge in stock trading will reduce the risk.  Ensure that you have enough knowledge of the company you want to buy and more importantly, sell while you’re earning.

These stock trading tips may not be comprehensive but aims to provide basic knowledge.

Good Luck!

Penny stock is commonly defined as any stock that is trading for less than one dollar.  Some defines it as any stock below fifty cents or a stock less than a dollar that’s trading off a major stock exchange.  Penny stock is usually traded in over the counter (OTC) market such as “Pink Sheets” and “Over the Counter Bulletin Board (OTCBB)”

OTC market is not an organized marketplace or exchange.  OTC is a catchall for any market in an equity security that is not listed on a US exchange or on the NASDAQ Stock Market.  OTC securities are issued by companies that either choose not to list, or are not able to meet standards for listing on NASDAQ or a US stock exchange.

OTCBB is the place where stocks usually not found in NASDAQ or other major exchanges are listed.  Stocks listed on the OTCBB are not covered by SEC regulation, thus making them high-risk investments.  However, some companies, with the hope of future listing on the NASDAQ comply with SEC rules and are behaving well.  These are the companies you should be investing with.  Having the “list of penny stock” is one of the tools to have in order to work your way in this investment.

Pink Sheet is another OTC market where penny stocks are traded.  Both OTCBB and Pink Sheet are not governed by a security regulatory authority.  It is not a stock exchange.  The Financial Industry Regulatory Authority (FINRA) and U.S. Securities and Exchange Commission (SEC) regulate all Market Makers in Pink Sheet and OTCBB.  “FINRA’s responsibilities include establishing rules governing the business conduct of its broker/dealer members; setting qualification standards for securities industry professionals; examining members for their financial and operational condition, as well as their compliance with appropriate rules and regulations; investigating alleged violations of securities laws; disciplining violators of applicable rules and regulations; and responding to inquiries and complaints from investors and members.”

You can find several sites wherein penny stocks traded in OTCBB and Pink Sheet are analyzed.  These sites come up with suggested list of penny stocks to buy or hot picks.

Practically anybody can create a hot pick list of penny stocks.  Since many people have access to these lists, it becomes the subject of manipulation and self-serving forecast. Apply great caution in browsing the so-called hot list. List of penny stocks could be up to date while could be outdated.  Save yourself from sham companies, conduct your own research and do not rely so much on penny stock hot pick list.

The internet provides various websites declaring a list of penny stocks.  A list of penny stocks is usually accompanied by financial analysis and forecast by brokers or investment advisors.  You may use the list of penny stock as one of the basis as there is a possibility that one or two from the list of penny stocks are doing legitimate business. List of penny stocks are published in blogs, chat rooms, news letters, forums and the likes.  These online communities are compose of experienced, curious, beginners, and cons.  Unfortunately, cons make up the most percentage.

Penny stock is a highly volatile investment, extreme caution is necessary in dealing with penny stock.  Don’t let any person or seemingly informative list of penny stocks influence you in your investment decision.  Conduct your personal research and beware of scrupulous bogus companies.  Invest a small amount first to test the waters.