The most preferred method of trading penny stocks is by using a brokerage account. However, even though this fact is beyond debate, many investors still to go down business ownership paths through direct investing. It pays to understand that this option presents some pros and cons that you must weigh ahead of time. Direct investing yields varying outcomes. However, your chances of enjoying superior returns will again depend on your ability to find the best penny stocks.
Here are the different approaches you can use to venture directly into penny stock trading.
Direct Shares Purchase Plan
This is the most straightforward way to buy stocks without using a broker. Sometimes, companies sponsor Direct Stock Purchase Plans (DSPP) to encourage small investors to buy ownership from them directly. In this case, you can invest in shares by working with the plan administrator or transfer agent assigned to deal with the involved DSPP transactions and paperwork.
For this arrangement to work, an investor must agree to have a specified amount slashed out of their savings or checking accounts. You can make a $250-$500 one time purchase, or this amount can be taken from your account gradually through a period of six months. The DSPP administrator will then use this money to help you purchase the shares of the company directly from the business during a preset date or on the open market.
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Dividend Reinvestment Programs
Another ideal way of buying stocks without a broker is through stock dividend reinvestment programs (DRIP). This method solely works if you already have stocks within a specific company. The idea is to channel your cash dividends back into a company and secure more stocks.
Specialized Gifting Services
Some companies allow potential investors to buy one stock just to get their names on the corporate shareholder list. From this point, they can sign up for closed DSPP or DRIP plans where outsiders are not allowed to participate.
This is not a very popular method nowadays because investors are required to settle a “nuisance fee” of $250-$500. With numerous credible brokers who have reasonable fee structures, this arrangement may not have any significant benefits to offer you, especially if merely want to invest a small amount of money.
Why Use a Broker?
Even though most people prefer using brokerage companies and online platforms, a penny stockbroker can also be an independent individual. Either way, any full-service broker will help to reduce the risk of investing in raw deals, although it is up to you to investigate companies before investing in them. Consider your ability to withstand market swings and determine your risk tolerance levels before buying penny stocks.
Through penny stock trading, you can quickly increase your earning potential. In fact, the best penny stocks could make you a fortune almost overnight. Take time to do your research to eliminate stagnant companies with weak stocks and focus on those that have the potential to thrive and earn you a big payday.