- 1). Start an online brokerage account. Companies like E-Trade, Ameritrade and Scott Trade have existed for 10 years or more and will suffice. You'll need a minimum of $500 to open an account with these companies as of 2009. Choose a broker that has a membership with the Financial Industry Regulatory Authority (FINRA) or Security Investor Protection Corporation (SIPC), which regulate brokerage firms.
- 2). Understand what you plan to invest in. Investing in some penny stocks can pose a greater risk than investing in mid-range and large-cap stocks, simply because these companies are largely unregulated. To have a listing on the S&P or Nasdaq exchange, a company has to go through a stringent application process and must meet many financial criteria. Also, the company must submit its financial statements quarterly; if the company no longer meets the criteria, a stock can become delisted. These sorts of rules don't apply with many penny stocks, which attracts scam artists. Therefore, only invest in penny stocks that are regulated and listed on the Nasdaq. The $1 stock you purchased may go on to become a $50 stock, making you rich; just invest carefully and intelligently.
- 3). Consider a few factors when purchasing penny stocks:
Determine the profitability---either actual or potential---of the company in which you plan to invest. If it does have a profit, determine whether it has remained consistent over the past few quarters. If it appears unprofitable, determine whether it has exhibited consistently growing sales.
Find out how much debt the company carries (obviously, the less debt, the better) and its debt-to-sales ratio (again, the lower, the better).
Evaluate the quality of the company's management---whether it has a good experienced management team or whether it consists of a bunch of kids just out of college.
Finally, determine whether the company takes part in a hot industry about to blow up. - 4). Find a good newsletter that specializes in penny stocks---"Forbes" and "Barrons" both recommend Pennystock.com, which has shown a consistently winning track record since 1997 and as of 2009 cost $89 for a one-year subscription. FalconStocks.com, another good service, has shown a consistently winning track record since 2004. As of 2009, it costs $99 a year to join.
Finally, MicroCapmillionaires.com costs $49 per month as of 2009 but sends out a lot more trades than the other services and offers a free trial.
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