Though risky investment vehicles, penny stocks aren’t really going away when it comes to popularity. They’re not in the same spotlight as cryptocurrencies, but the demand for them is still there. As a Fidelity customer or a soon-to-be one, you might be asking: “can you buy penny stocks on Fidelity?”.
Yes, you can buy penny stocks on Fidelity; you can access hundreds of them, as a matter of fact… More so, they won’t charge you anything extra for this service. But Fidelity states that because of the many risks associated with trading penny stocks, they will have to ask you to confirm that you understand all of them.
In this article, I will guide you to buying penny stocks on Fidelity and outline all of the risks that come with trading them.
Sounds good? Let’s get to it…
How to Buy Penny Stocks on Fidelity
Once you have locked in the penny stock you want to buy, you only need to place an order via Fidelity’s website or their mobile app. It really doesn’t matter what you use to trade because the steps below will apply to either.
First, click the “trade” button that you find on the page of the stock. Then select “buy” in the action menu and fill the quantity field based on the number of shares you want to buy.
Now, it’s time to select the type of order. You can choose between a market or limit order. A market order will be executed immediately but won’t guarantee that you will buy the stock at a desired price. A limit order, on the other hand, will guarantee that you buy it at the price you want but it may not be executed immediately.
If you are completely new to trading, I’d recommend you place a limit order since this type of orders are generally safer. You will have to place the highest price you are willing to pay for the penny stock in the limit price field.
A “time in force” instruction will determine the time that the order will be executed and what will happen in case it’s not filled. A “day” instruction will cancel the order at the end of the trading session if it isn’t filled. And at last, a GTC or “good ‘till cancelled” instruction will let the order be active until it is filled or until 180 days pass.
To finalize your order, select “preview” and if everything looks good, click on “place order”. And that’s it! You just placed an order for a penny stock.
If you want to see whether your order has been filled or not, check the order status page. It usually takes less than a minute for an order to be completed.
When it comes to selling a penny stock, the steps you need to follow are the same.
The Risks of Buying Penny Stocks
The main factor that makes penny stocks risky is that the underlying businesses are too young. And the reasons that young companies are risky to put your money into are the following…
As you can imagine, penny stocks have lower demand and supply than mid-cap or even small-cap stocks. The lack of liquidity presents a very real and scary risk, especially for active traders.
First of all, if you buy a stock that has low liquidity, you may have a hard time finding a buyer for it. That could force you to lower your ask price and sell at a cost.
In addition, when a stock has low liquidity, it is easier to manipulate it. When it comes to penny stocks, there have been times that manipulators have bought a large number of shares only to sell them after pushing the price upwards. This technique is called pump-and-dump.
Lack of Historical Financial Data
The lack of financial data is as troublesome as the lack of liquidity if not more. Penny stocks are inherently risky because there’s not much data to ensure their safety as investments. This may not be a problem for traders, but investors will not have much to go on.
Before you invest in a company, it’s important to have access to financial reports going on many years back. That allows you to determine a company’s safety and potential. With penny stocks, this simply isn’t possible because they’re relatively new companies.
Not Regulated Enough
Penny stocks can be found on the OTCBB and pink sheets. This entails that they don’t have to fulfill some minimum standard requirements to be there. For example, the pink sheets don’t require penny stock companies to file documents with the SEC on time.
In essence, penny stocks aren’t regulated as well as stocks on major exchanges. And that always poses a great risk for investors and traders alike.
As I told you, penny stocks can be traded on Fidelity and it won’t cost you anything more than trading regular stocks. The only thing that Fidelity asks of you is to state that you understand the risks that come with trading penny stocks.
The steps you need to take to trade penny stocks don’t differ from trading any other kind of stock. If you’re new to using Fidelity, just follow the steps above to place an order in no time.
Just make sure you understand the risks involved with trading penny stocks. The companies behind them are too young to have a large track record to be considered safe to invest in. On top of that, they are usually low in liquidity and not regulated enough. Make sure you read the risks in detail above before you place any trade if you’re new to this.
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Thanks a lot for reading and I’ll talk to you next time…
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