Is it Difficult to Sell Penny Stocks? The Truth No One Tells You

The Hidden Challenges of Exiting Penny Stock Positions

Let me be real with you – selling penny stocks can be a nightmare sometimes. I’ve been in the investment game for years, and penny stocks continue to be one of those areas where traders get excited about the buying part but forget to consider the “getting out” part.

Penny stocks (those trading under $5 per share according to the SEC) might seem attractive because of their low price point, but when it comes time to sell, many investors discover the harsh reality of these investments.

Why Selling Penny Stocks Is Often Harder Than Buying

The biggest issue with penny stocks isn’t necessarily buying them – it’s selling them when you want to. Here are the core difficulties you’ll face:

Low Liquidity: The Silent Killer

Low liquidity is probably the most significant challenge when selling penny stocks What does this mean in real terms?

• Few buyers available when you want to sell
• Wide bid-ask spreads that eat into your profits
• Price slippage when you try to execute larger orders
• Days or weeks to fully exit a position without tanking the price

I remember trying to sell shares in a small biotech penny stock a few years back Despite the company announcing positive trial results, I couldn’t find enough buyers to exit my position without driving the price down myself What should have been a quick profit turned into weeks of slowly selling small batches of shares.

The Trap of Pump-and-Dump Schemes

Penny stocks are notorious for being vehicles for pump-and-dump schemes. According to the information from Fidelity:

“Less stringent disclosure requirements can make penny stocks particularly susceptible to illegal ‘pump-and-dump’ schemes where unscrupulous investors buy the stock, actively promote only its virtues, and then, if the stock price appreciates, sell it at an artificially inflated price.”

If you bought during the “pump” phase, you might find yourself struggling to sell during the “dump” phase when prices collapse rapidly.

The Real Costs of Selling Penny Stocks

Those Pesky Bid-Ask Spreads

Penny stocks typically have much wider bid-ask spreads compared to established stocks. This means the difference between what buyers are willing to pay and what sellers are asking for is larger.

For example:

• Blue-chip stock: Bid $50.10 / Ask $50.15 (0.1% spread)
• Penny stock: Bid $0.35 / Ask $0.45 (28.6% spread)

This spread is essentially a hidden cost when you sell. You might think your penny stock is “worth” $0.45 based on the last trade, but you can only sell it for $0.35 in reality.

Broker Restrictions and Fees

Many brokerages place additional restrictions or charges on penny stock transactions

• Higher commission rates for penny stocks
• Minimum order fees that impact small transactions
• Special approval processes required before trading
• Limitations on using margin for penny stocks

Fidelity notes that “Fidelity customers can only buy and sell penny stocks after acknowledging their understanding of the specific risks associated with trading penny stocks.”

Real Talk: When Selling Becomes Nearly Impossible

I’ve seen situations where penny stocks become virtually impossible to sell:

The “No Bid” Scenario

Sometimes a penny stock can reach a point where there are literally no buyers at any reasonable price. This usually happens after:

• Company announces major negative news
• Regulatory investigations begin
• Suspicions of fraud emerge
• Trading volume drops to near-zero

The Halt and Delisting Nightmare

Trading halts and delistings are more common with penny stocks than established companies:

1. Trading halts – Regulatory bodies can halt trading pending announcements or investigations
2. Delisting – The stock gets removed from exchanges or OTC markets
3. Going dark – Company stops filing required reports

Once delisted or “dark,” selling shares becomes extremely difficult, often requiring specialized broker services that charge substantial fees.

How To Improve Your Chances of Successfully Selling Penny Stocks

While selling penny stocks is inherently challenging, there are strategies that can improve your chances:

Limit Your Position Size

One of the most important rules I follow is to never buy more shares than the average daily trading volume. If a penny stock trades about 50,000 shares daily, I won’t buy more than 5-10% of that amount.

Use Limit Orders, Not Market Orders

Always use limit orders when selling penny stocks. Market orders can result in executions far below your expected price, especially in thinly traded stocks.

Consider Scaling Out Gradually

Rather than trying to sell your entire position at once, consider selling in smaller increments over time:

• Sell 20% of your position at a time
• Space sales out over days or weeks
• Adjust your selling strategy based on volume patterns

Look for Volume Spikes

The best time to sell penny stocks is often during unusual volume spikes:

• News announcements
• Industry-wide movements
• Promotional campaigns (though be wary of pump-and-dumps)
• Market-wide high-liquidity days

The Information Gap Problem

According to the Fidelity article:

“A primary risk of penny stocks is the potential for a lack of reliable, readily available information. In general, penny stocks are not required to disseminate the same type or amount of information as stocks that are listed on established exchanges.”

This lack of information makes selling particularly challenging because:

1. You don’t know if insiders are selling
2. You might miss important news that impacts value
3. Financial data may be limited or outdated
4. Red flags that would normally warn investors might be hidden

My Personal Penny Stock Selling Strategy

After years of dealing with penny stocks, here’s the approach I now take:

1. Set firm exit targets before buying (both profit targets and stop losses)
2. Create a time-based exit plan (sell after X months regardless of performance)
3. Always factor in liquidity when planning position sizes
4. Be mentally prepared to take a loss rather than holding indefinitely
5. Never fall in love with a penny stock story or potential

Are There Any Advantages to Selling Penny Stocks?

To be fair, there are some potential advantages when selling penny stocks:

• Percentage gains can be substantial on successful picks
• Some brokers now offer commission-free trading
• Tax-loss harvesting opportunities for failed investments
• Occasional acquisition of penny stocks by larger companies

However, these advantages rarely outweigh the difficulties for most investors.

Who Should Even Consider Penny Stocks?

According to the Fidelity article, investing in penny stocks “entails significantly more risk compared with investing in established companies.” I’d add that selling these stocks adds another layer of risk.

Penny stocks might only be suitable for:

• Experienced investors who thoroughly understand the risks
• Those willing to do extensive research on small companies
• Investors who can afford to lose their entire investment
• Traders with access to specialized information or analysis

The Bottom Line: Be Realistic About Selling Challenges

The reality is that many people buy penny stocks without considering how they’ll exit their position. The fantasy is finding the next Amazon or Apple when it was just starting out. The reality is often quite different.

The Fidelity article sums it up well:

“Of course, there is the potential to make money investing in penny stocks. However, penny stock investors are taking on a dramatic increase in potential price volatility and risk; there is an even stronger chance that investing in penny stocks could result in losing part or all of your investment.”

I’d add that even when you’ve “made money” on paper with penny stocks, converting that paper profit to actual cash in your account by successfully selling can be the biggest challenge of all.

My Final Thoughts

Is it difficult to sell penny stocks? Yes, frequently it is. The combination of low liquidity, wide spreads, limited information, and vulnerability to manipulation makes selling penny stocks significantly more challenging than selling established securities.

If you’re still determined to venture into penny stocks, do your homework, prepare for the worst, and always have an exit strategy that accounts for liquidity challenges. And remember, sometimes the best trade is the one you don’t make.

What’s your experience with selling penny stocks? Have you found certain strategies that work better than others? I’d love to hear about your experiences in the comments below!