How to trade penny stocks on fidelity

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The subject line of the email you send will be "Fidelity. But trading penny stocks can be extremely risky, particularly as some upstart penny stock companies hire prominent spokespeople to entice investors that may not be knowledgeable enough or prepared to accept those risks.

In practice, you might come across several definitions of a penny stock.

Stock Trading - Fidelity

You may see penny stocks referred to as micro-cap stocks at Fidelity. A major risk of trading penny stocks can be their low liquidity. Many penny stocks are thinly traded, with far less than a million shares traded each day.

Fidelity Penny Stocks

When buying or selling a stock that has low trading volume, investors may not be able to do so at their desired price or time, and that can be costly. Low liquidity is a contributing factor to potentially high bid-ask spreads for penny stocks. This means that, relative to most stocks traded on the NASDAQ or the New York Stock Exchange NYSE , the cost of trading these stocks is typically higher.

More importantly, one of the biggest risks of penny stocks is the potential for a lack of reliable, readily available information.

In general, penny stocks that trade on the Bulletin Board are not required to disseminate the same type or amount of information as stocks that are listed on big exchanges—like the NYSE. Also, many penny stocks are issued by newly formed companies with little or no track record. Without enough information, you may not be able to fully evaluate the company.

Because they are often small in size, penny stock companies do not receive the same level of media and analyst coverage as larger, public companies, and so it can be difficult for investors to determine the validity of claims made by pump-and-dump schemers. Unfortunately, those who bought the stock at the high end could be left high and dry. Of course, there is the potential to make money investing in penny stocks. For some, penny stocks seem to have several attractive features: Some penny stock traders may trade tens of thousands of shares for a relatively low amount of money, hoping that the price will rise sharply over a short period of time.

In exchange for being able to buy a large number of shares—due to a penny stock being relatively low priced—investors in these companies are taking on a dramatic increase in potential price volatility and risk; there is an even stronger chance that investing in penny stocks could result in losing part or all of your investment. The bottom line is this: Trading penny stocks can be extremely risky. Fidelity Brokerage Services LLC, Member NYSE, SIPC , Salem Street, Smithfield, RI Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance.

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The bull call spread. Looking to take advantage of a rising stock price while managing risk? Consider this spread strategy.

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How to Trade Penny Stocks - ValuePenguin

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