Penny stock investing: How to start investing in penny stocks in three steps

Julie Brownlee, Fsp Invest, 29 Jul. 2014

Tags: penny stocks, penny stock investing, investing in penny stocks, buying penny stocks, penny shares, stockbroker, stock broker

Penny stocks are companies trading on the Johannesburg Stock Exchange (JSE) for less than R10.

There are generally two types of penny stocks. They’re either new companies that have recently listed on the stock market. Or they’re companies that have hit hard times and their share price has fallen as a result.

So if you want to invest in penny stocks, where do you start?

Let’s take a closer look…

Step 1: Find penny stocks to buy

The first thing you need to do is track down penny stocks on the JSE. You’ll generally find them listed on the AltX (a part of the JSE for smaller, young companies) or in the small-cap index.

You then need to whittle through the penny stocks you find to uncover the ones with the best potential.

Step 2: Open an account with a stockbroker

Once you know what penny stocks you want to buy, if you don’t already have one, you need to open an account with a stockbroker. This is an easy process.

Generally speaking, you need a minimum of R10,000 to start investing. So make sure your chosen broker deals with the amount of cash you have to invest.

Once you’ve found a broker, it’s a case of opening the account. This requires the same documentation as opening a bank account.

Step 3: Start buying penny stocks!

Once you have your money in your stockbroking account, the next step is buying penny stocks. When you know what penny stocks you want to buy, phone your broker.

You just have to tell the broker how many shares of what company you want to buy.

You might also want to place a limit order when you buy the shares. This prevents you paying more than you want for shares. You can read more about limit orders here.

So there you have it, how to start investing in penny stocks in three steps.

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