Can you Buy Penny Stocks on Fidelity?

If you are a Fidelity customer, you might be wondering whether you can buy penny stocks on Fidelity. Some investors seeking large returns find penny stocks, a class of low-priced companies that trade for less than $5 per share, to be appealing.

But, there are risks associated with investing in penny stocks, so you must do your homework before deciding. We will respond to your query and give you all the details you require regarding trading penny stocks on Fidelity in this article.

How to Buy Penny Stocks on Fidelity?

A fantastic technique to get significant profits with little capital is through penny stocks. Finding the greatest penny stocks to purchase can make you wealthy, but doing your homework and working hard to find them will pay off. Expecting to become wealthy overnight is unrealistic, but learning how to purchase penny stocks will significantly increase your chances of selecting a winner.

One of the most well-known internet brokers in the world is Fidelity. They offer a brokerage service to everyone who is interested in trading securities. Those who desire to trade penny stocks and other inexpensive assets are included in this. Fidelity offers two ways to trade penny stocks: directly and through a “robo-advisor.”

Online services are known as robo-advisors assist investors in finding and managing a variety of investments with little to no human involvement. To find chances and carry out trades on your behalf, they employ complex tactics and algorithms. You cannot trade penny stocks with the majority of robo-advisors, but Fidelity is an exception.

You have two options for orders when purchasing penny stocks on Fidelity: market or limit. A market order will be filled right away, but it won’t ensure that you’ll get the stock at the price you want to pay. On the other hand, a limit order enables you to purchase penny stocks at a specific price. Your order won’t be carried out if that pricing isn’t offered in the market.

Finding investors willing to sell penny stocks they own might be challenging since penny stock markets are less liquid than those for larger securities. Although Fidelity offers penny stocks with low pricing, it could be challenging to get buyers eager to purchase them at the necessary price. A limit order, which is typically safer than market orders, should be placed if you’re a novice trader.

The greatest price you are willing to pay should be entered in the limit price area when purchasing penny stocks. The order will be carried out and what happens if it is not filled at the time specified by a “time in force” command. If an order is not filled by the conclusion of the trading session, a “day” command will cancel it.

Contrarily, a “good-till-canceled” (GTC) order won’t become inactive until it is either performed or canceled by you. Your trades will include a commission cost, as is typical for penny stocks, and you will be required to pay for any penny stock transactions in full at the time of execution. You can only trade penny stocks on Fidelity’s penny stock markets; you cannot do so using a robo-advisor or on any other marketplace.

Be sure you are informed of the cost before placing an order because commission fees for penny stocks are frequently greater than those for normal equities. Go to the sell orders page first if you want to sell a stock. Then, using the drop-down choices, choose a customer, a security, and a quantity. To sell your penny stocks, click on submit order if you are satisfied with your order.

On the Fidelity website, you can watch penny stock prices. You can also keep an eye on the penny stocks you own right from your account dashboard. The list of all securities in the penny stock market, including those traded using a robo-advisor and those carried out using standard orders, is displayed on the penny stock markets page.

Can you Buy Penny Stocks on Fidelity?

Yes, Fidelity allows customers to trade penny stocks. However, there are some requirements and restrictions that you need to be aware of before trading penny stocks on Fidelity.

Requirements for Trading Penny Stocks on Fidelity:

You need to have a minimum of $2,500 in your account to be able to trade penny stocks on Fidelity.
Fidelity requires that you sign a penny stock trading agreement before you can start trading penny stocks.
Fidelity charges a commission of $0 per trade for all online U.S. equity trades, including penny stocks.

Restrictions for Trading Penny Stocks on Fidelity:

Fidelity does not allow customers to trade penny stocks on margin, which means you can only buy penny stocks using cash in your account.
Fidelity does not allow customers to short-sell penny stocks, which means you can only buy penny stocks with the expectation that their price will rise.

What to Consider Before Investing in Penny Stocks on Fidelity?

Before investing in penny stocks on Fidelity, it’s important to consider the following:

Risks: Penny stocks are generally considered high-risk investments due to their low liquidity, lack of information, and volatility.
Due diligence: It’s essential to conduct thorough research and due diligence on the penny stocks you are interested in investing in.
Diversification: It’s important to diversify your portfolio and not put all your eggs in one basket. Investing in penny stocks should be a small part of your overall investment strategy.

Low Liquidity

For those who invest in penny stocks, a lack of liquidity can be a major problem because it makes it difficult to sell your shares. It will be challenging for you to sell 1,000 shares of a corporation if no one else is interested in purchasing them from you. As a result, the price can fall as soon as you try to sell your investment.

The lack of active trading in low-liquidity equities is the cause of this. The price will increase significantly if no one wants to sell but everyone wants to purchase. On the other side, if nobody wants to purchase but everyone wants to sell, the price will fall even further. Liquidity in penny stocks is quite low.

Consider the following if you’re considering trading penny stocks:

Liquidity issues cause slippage. To guarantee that your trade won’t cause the market to move against you, you must have a sizeable order.

Low liquidity is problematic if you wish to apply leverage. It is more challenging to anticipate with accuracy how much of an impact leverage will have on your trades because tiny stocks see less trading activity.

Also, it may be a sign of price manipulation when prices in low-liquidity stocks increase dramatically. Trading thinly traded stocks requires extreme caution, thus it is best to start by avoiding them.

Lack of Historical Financial Data

Stocks known as penny stocks are those that trade for less than $5 per share. Despite being a novel phrase, investment has long used this concept. Brokers that don’t adhere to any of the established regulatory standards for stock trading frequently trade equities.

The issue with penny stocks is that there isn’t much information available about them because they are relatively young businesses. When you take into account the fact that these businesses have very little backing, the situation worsens.

As they lack the resources to finance their business, they must find alternative means of reimbursing investors. In order to persuade individuals to invest in the company, one of these strategies is to generate a lot of excitement about it. This results in deceptive advertising that suggests there is little chance of losing money and that there are significant profits to be made.

Conclusion

Customers of Fidelity are permitted to trade penny stocks, but there are conditions and limitations that must be understood before trading. When investing in penny stocks, it’s crucial to complete your research and weigh the dangers.

Your overall investment strategy should not include much penny stock investing, and you should diversify your holdings to reduce risk. Make sure you complete the conditions and sign the penny stock trading agreement if you’re prepared to begin trading penny stocks on Fidelity.