How To Choose Penny Stocks

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What is the price type on eTrade?

I am trying to buy a penny stock on eTrade that is currently at 0.008. When I go to purchase it I have to chose a price type. The options are: Market, Market on Close, Limit, Stop, Stop Limit, Trailing Stop $, or Trailing Stop %.

When I chose Market or Market on Close it tells me “Non-equity, bulletin board, OTC, pink sheet and other specific securities are not eligible for the price type you have specified.”

Obviously, I am new to all of this, but how do I purchase this stock!? I don’t even know what the other price types mean. Which one do I need to pick to buy this stock?

Thanks in advance

Market orders tell the broker to buy or sell at whatever price you can get.

Market on close is the same, except you are buying at the closing price of the stock, which can vary greatly from the next to last price the stock traded at.

Limit orders tell your broker that you want to pay a specific price for a stock, OR BETTER!

Stop means you want to sell your stock AS A MARKET ORDER if the stock touches a certain price. As happened a few days ago, the price they sell at can be substantially below the price that triggered the stop order.

Stop limit means if your stock touches a certain price, the broker is to sell your stock but ONLY at the limit price you specify (or better). If the stock is in a free-fall, your order to sell may not get executed because the stock “moved away” from your price too fast.

Trailing stops and stop %’s are stop and stop limit orders that move up as the price of the stock moves up or down.

(most of the examples above pertain to being long (owning) a stock and wishing to sell. The examples can be reversed for short stock).

Now, getting back to your stock. This is a stock that isn’t traded in a traditional electronic market, it’s sold between brokers, and most of the sales take place via telephone calls or messaging. The price you see may be yesterdays closing price, or a closing price from a few days ago, and not truly reflect what the real market may be. E-trade is protecting you from buying a stock at a price that may differ SUBSTANTIALLY from what you see as a “quote”. Therefore, they want you to enter a limit order, which will only be executed if they can buy at that price or better.

For these OTC, Bulletin Board, or pink sheet stocks your best bet will be to call the trading desk at E-Trade, and ask for a current quote. They will put you on hold, call the market maker of that stock for the current price, then tell you what that price is, and usually give you the quantity on each side. For example, .03 – .05, 1000 x 3000 means there are 1000 shares bid at .03, 3000 shares offered at .05. (check with the broker regarding how quantities in BB stocks are quoted). You can then either ask the broker to enter an order, or try it again online using the current quote. The commissions on a phone order are usually much higher than an online order, but sometimes that’s the only way these stocks are traded. Ask before you buy.

Also realize that the spreads, or the price between the bid and ask, are often VERY substantial, and many times you need the price of the bid to double just to break even.

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