I love the thrill of winning an auction on eBay. Watching the clock run down while my bid remains the highest is pretty exciting, especially since I'm usually buying something at a steep discount. We're all probably familiar with this traditional online auction setup.

But there's something new in the world of online auctions, and it's gaining traction faster than ever. It's called penny auctions, and they're popping up left and right. You might have seen an ad or two about them. "Win an iPad for $40" or "Laptops for $109." The prices seem amazing, but before you sign up for an account, you should understand how these sites work.

It's important to note that there are literally hundreds of penny auction sites, and if you're set on joining one, you should do your research before signing up for the first one you see. The largest and most reputable sites are QuiBids and Beezid – please note that this is not an endorsement for these sites, it's simply a reference to a couple popular penny auctions out there.

How Do Penny Auctions Work?

Penny auctions are not the same as eBay auctions. The way it works is this: you sign up for an auction site and purchase bids. That's right, you have to purchase bid packages that can cost anywhere from $0.75 to $1.00 or more per bid. Most sites will have a minimum package of 10 and allow you to purchase hundreds at a time.

Now that you have your bids, you can start bidding on an auction. Each bid that you make will raise the auction price by a penny. Let's say you find an iPad up for auction and it's currently at $20.00. Your bid will raise the price to $20.01 and the time clock will reset 30 seconds. That's right–there isn't a traditional countdown with a predetermined number of minutes. Each time someone bids, the 30-second auction clock resets, meaning that the auction could go on for a long, long time.

So what happens when the clock finally runs down?

If you were lucky enough to be the last person to bid, you have the option to buy the item at its auction price. If that iPad was bid up to $40, you have the right to buy it at $40. Sounds good, right? Yes, if you're the winner. But you must also consider the number of bids you put up to win that iPad. Did you bid 300 times? Sure, it only bid up the auction by a penny each time, but you paid anywhere from $0.75 to $1.00 for each bid, so you need to consider that cost in your final winning price.

A more likely situation is that you don't win the auction at all. So what happens to all those bids? They're gone. Some auction sites will allow you the option to buy the item at retail cost using a slight discount based on your bids, but that's usually not a good deal at all.

The reality is that the house always wins. The auction site is making a killing with each iPad they sell for $40.00. Just think, at a penny per bid, that iPad (retail price $500) brought the auction site $4,000. It's a risky game, and it can be very addicting to try to win auctions.

So what are your thoughts? Have you ever participated in a penny auction?

This has been a guest post by Tim from Kirksville, MO
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