Present-Day Microcap Trading Strategies

For those of you who are just starting in the business, buying and selling penny stocks can be an exasperating and expensive enterprise. As the years passed, we have seen way too many investors stagger into the pitfalls of penny stock investing (ourselves included). If you are an advanced or experienced microcap investor you might want to omit this section as it is a general review intended to instruct those who are new to the penny stock investing business.

You need to understand that trading penny or microcap stocks can be much different than what you are used to on the larger exchanges if you are new to these stock investing. The principal item to think about here is where you trade your stocks. Trading on the NASDAQ and AMEX is generally comparable to what you are used to with normal stocks. One main difference between NASDAQ or AMEX penny stocks and their more costly brethren is that the largest part of brokerage firms will not permit margin activity on stocks that sell for less than five dollars. Besides that, trading these stocks on mentioned exchanges is practically no different as what you are used to.

You have entered a different world of investing once you start trading penny stocks on the OTCBB or Pink Sheets. If you fail to understand this, you are meant to lose money and gain frustration as you trip and fall on the little nuances that are one of a kind to trading on these markets.

As we mentioned other times in this article, the first rule of trading on the OTCBB or Pink Sheets is to DON’T YOU EVER, EVER PLACE A MARKET ORDER! The open market order is the most frequent mistake that we see inexperienced investors make when they are trading penny stocks. If you should learn one thing from this article, this what you should pay most attention to. Similar to the larger exchanges which are requisite to execute your order in a timely approach, transaction executions on the OTCBB and Pinks are at the good judgment of the market makers. To put it in other words, there is no assurance that your order will be filled at the current market price if you place a mark order. An open market order tells the market makers that you are prepared to pay the market price for a stock. On the larger exchanges where transactions happen virtually immediately, you generally get your stock for the listed price when you click the buy button. This may not be the case on the OTCBB and Pinks. With an open market order, there is a probability that the market makers will raise the asking price of a stock previous to filling the buy order. But you shouldn’t blame the market makers. You said that you were prepared to pay the going rate for the stock and there is no rule that says they have to fill your order straight away.