How to Buy Penny Stocks on Fidelity

Penny stocks—those enticing low-cost shares of small companies that can either skyrocket overnight or disappear into obscurity—offer the thrill of high-risk, high-reward investing. For many, penny stocks represent an opportunity to get into the market without needing significant capital, and Fidelity, as one of the largest brokerage platforms, provides a seamless way to access these stocks.

Why Start with Penny Stocks?

Imagine you’ve got a few hundred dollars set aside, and the prospect of flipping it into thousands excites you. Penny stocks often draw attention for this exact reason. Unlike the heavyweights in the stock market, penny stocks (generally priced under $5) can see enormous percentage increases with just a slight uptick in their price. That’s the allure—a small movement can lead to massive returns, or equally, steep losses.

But how do you buy these potentially game-changing stocks on a platform like Fidelity? You’re about to learn how to navigate Fidelity’s interface to find, purchase, and manage penny stocks like a seasoned investor.

A Quick Primer: Penny Stocks and Their Risks

Before diving into the steps, it’s critical to understand what you're dealing with. Penny stocks, because of their low price and thin trading volume, are often more volatile and prone to manipulation. Many of these companies have limited information available, meaning research is crucial. Fidelity helps mitigate some of these risks by offering robust tools to analyze these stocks, but you should still be prepared for significant price swings.

1. Setting Up Your Fidelity Account

The first thing you’ll need is a brokerage account with Fidelity. If you don’t already have one, the process is straightforward:

1. Sign up on Fidelity.com: Navigate to the website and create an account. Be prepared with your personal information, including your social security number and bank details.
2. Select the type of account: Whether you're opening a cash account, margin account, or retirement account, Fidelity offers flexibility based on your goals.
3. Fund your account: You’ll need to deposit funds. The amount can be as small or as large as you want, but remember, penny stocks are generally low-cost, so even a modest deposit can go a long way.

2. Finding Penny Stocks on Fidelity

Now that your account is set up and funded, the next step is to identify which penny stocks you want to buy. Fidelity offers various tools to help you make informed decisions:

• Use Fidelity’s Stock Screener: This tool allows you to filter stocks based on various criteria such as price, sector, market capitalization, and more. To find penny stocks, set the price filter to $5 or below. You can further refine your search based on volume, industry, or even financial performance.
• Research tools: Fidelity provides access to third-party research and company data, making it easier for you to sift through the many available penny stocks. Look for companies with a track record of earnings growth or exciting new products that could drive future performance.

Once you’ve got a list of potential penny stocks, it’s time to dig deeper into each company’s fundamentals. Use the research tools provided by Fidelity to check for SEC filings, balance sheets, and news articles related to the stock.

3. Placing a Trade on Fidelity

After you've done your research and identified the stock you want to purchase, it's time to place your trade. Fidelity's platform is intuitive, making this step relatively simple:

• Log in to your account: Head over to the "Trade" section of the platform.
• Search for the stock: Enter the stock symbol or company name in the search bar to bring up its trading page.
• Choose your order type: Decide whether you want to place a market order (buying the stock at the current price) or a limit order (buying the stock only if it reaches a certain price). Pro tip: Given the volatility of penny stocks, a limit order can help you avoid paying more than you're comfortable with.
• Set the number of shares: Penny stocks are often traded in large quantities because of their low price. Enter the number of shares you want to buy and review your order.
• Place the trade: Once you’ve reviewed the details, submit your trade. You’ll receive a confirmation that your order has been placed, and if it’s a market order, it should execute almost instantly.

4. Monitoring and Managing Your Investments

Now that you've bought your penny stocks, the work isn't done. Penny stocks can experience rapid price swings, so monitoring your investment is crucial. Fidelity provides several tools to help you manage and track your portfolio:

• Set alerts: Use Fidelity’s alert system to get notifications when a stock hits a specific price target. This feature can be helpful if you’re waiting to sell at a particular price or if you want to be notified of sudden drops.
• Portfolio Analysis Tools: Fidelity offers comprehensive portfolio analysis tools, allowing you to see the overall performance of your investments and make adjustments when necessary.
• News and Updates: Keep an eye on relevant news that might impact the value of your penny stocks. Because many penny stocks are small, under-the-radar companies, significant announcements like product launches, financial reports, or regulatory changes can dramatically affect the stock price.

5. Knowing When to Sell

The key to successfully navigating the world of penny stocks is knowing when to sell. The price of a penny stock can surge rapidly, but just as quickly, it can fall. Set a clear exit strategy from the start—whether that’s hitting a specific profit target or limiting your losses—and stick to it.

A rule of thumb is to take profits when the stock has increased by a certain percentage, but don’t be afraid to hold onto a stock if you believe in the company’s long-term potential. Fidelity’s tools make it easy to stay informed about company performance, so make sure you’re continuously reevaluating your investments.

6. Costs Associated with Buying Penny Stocks on Fidelity

Fidelity is known for its low fees, which is one reason many investors choose it for penny stock trading. Unlike some platforms that charge higher commissions for trading low-priced stocks, Fidelity offers zero-commission trading for stocks listed on major exchanges. However, for stocks not listed on these exchanges, there might be additional fees, so it’s worth checking before you trade.

Conclusion: Start Small, Think Big

Buying penny stocks on Fidelity can be a thrilling entry point into the stock market, offering the potential for high returns with minimal upfront investment. But with this potential comes higher risk. The key is doing your homework, using the tools Fidelity provides, and managing your investments carefully.

Whether you’re aiming to grow a small portfolio or take a calculated risk, penny stocks provide a unique way to play the market. Start small, think big, and always stay informed.