What You Need Before Your First Penny Stock Trade - dummies

What You Need Before Your First Penny Stock Trade

By Peter Leeds

Penny stocks don’t necessarily require expert trading knowledge, but you will need some essentials. Before you can buy your first penny stock, you need to take care of a few details:

  • Make sure that you have a secure, reliable Internet connection to make your trades. Remember to take proper security precautions when using the Internet for financial transactions, such as using a strong password, avoiding public connections, and logging off properly.

  • Set up an account with an online broker. Make sure that your broker is “penny stock friendly.” Find out if he tacks on extra fees or imposes minimum deposits for penny stock trades.

  • Deposit the funds you intend to invest into the brokerage account. Deposit the money several days before you need it because there is often a delay of anywhere from a day to a week between when you deposit the money and when you can use it for stock purchases.

    The delay in using money sent to your broker isn’t the same as the three-day settlement period for stock market trades. The three-day settlement period applies to all trades, whether you buy or sell. This means that the brokers have up to three days to provide you the shares you purchased or the funds from a sale.

    Although brokers are legally obligated to act within three days, the good news is that almost every broker will generally process the transaction within minutes, if not instantaneously, which means that you won’t be affected by a settlement period of several days.