Understanding Order Placements For Penny Stocks
Are you looking for penny stocks to buy? Well, before you dive in, do you know how to buy penny stocks? If you answered yes to either, you’re in the right place. It’s very important to have proper knowledge before making any investment. You could also speak to a registered professional as well. But if you’re looking to fire up your online brokerage account and start making money with penny stocks, you’ll need to know some basics.
Other than tracking the company’s fundamentals and its line of business, it’s worthwhile to have an understanding of the type of orders that can be placed. There are mainly two broad categories of orders when it comes to penny stocks and they are limit orders and market orders.
Penny Stocks And Limit Orders
In case of limit orders, the trader decides the price he/she is willing to pay for a particular stock. If that price is met by a seller, then the order is completed. For instance, someone can place an order for 100 shares for $0.50. If the shares are being sold at that price or lower, then the order will be executed.
If only 50 shares are available for that price point, then the order will get partially executed. That being said, if all shares are being sold for $0.51 or more, then the order would fail. However, there are certain problems when it comes to limit orders for penny stocks.
Perhaps the biggest one is deciding on the price at which an investor wants to buy the penny stock. Since there is lower trading activity in these stocks, it can often be difficult to get the stock at the desired price. Additionally, the partial execution of orders can lead to higher brokerage costs.
Penny Stocks And Market Order
On the other hand, a market order is a much simpler affair. A trader will place an order for a certain number of shares at the best available price for a stock. The most important aspect of this type of order is that there is no complication with regards to partial execution.
However, it is also important to note that since there is often very little activity in penny stocks, a trader might end up paying more than the price at which he/she had placed the order. Additionally, a large market order can also end up pushing the market higher, thereby resulting in paying a higher price by the time the trade is completed.