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How do you start trading penny stocks?

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Quick Answer

A person can start trading penny stocks by selling fast, not shorting and finding stocks that are over 50 cents a share, according to MarketWatch. Beginners can find penny stock listings on NASDAQ or the New York Stock Exchange to get started, claims For Dummies.

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Full Answer

Selling penny stocks fast means that investors can make returns of 20 or 30 percent within a few days, notes MarketWatch. Shorting overhyped penny stocks can lead to financial loss. Investors that short inappropriately can lose as much as 50 percent when trading. Shorting penny stocks is typically reserved for professionals and is not recommended for novices.

Stocks that are worth more than 50 cents per share are safer investments, reports MarketWatch. Traders should look for stocks that trade at over 100,000 shares a day. It's also wise to avoid trading at over 10 percent of the daily volume. The share size purchased should be minimized to avoid being entangled in the stock.

Before trading, investors can look on the Securities and Exchange Commission to see if any company has a history of financial wrongdoing, explains For Dummies. OTC Markets provides different ratings based on company disclosure. For instance, the highest possible rating is otcQX in terms of how much information a company offers to the public is otcQX. Investors must be careful because penny stocks are susceptible to manipulation.

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