Penny stock, also referred to as nano-cap stocks, small cap stocks, OTC stocks or micro-cap stocks are risky investments and are a common stock that trade for a low share price, typically issued by small, less-established companies.
A company either has low financial metrics or highly speculative stock, resulting in more risk and an uncertain future. Before learning how to buy penny stocks, you need to understand that penny stocks in the UK trade for less than £1, while on US stock exchange markets, they trade for less than $5.
You need to find an undervalued stock with strong financials, a positive value, and a promising outlook. After that, find someone to sell it to you at a bargain price, and hold onto it until the company returns on a major market exchange. If a company turnaround is anticipated, it won’t be easy finding a trader who is willing to sell as they would much rather hold onto the shares and reap the rewards.
However, it’s easy to get along with traders by offering them ever-growing cryptocurrency. If you don’t have such an opportunity, you can borrow cryptocurrency from one of the best crypto loans websites.
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Invest in penny stocks at your own risk as they are notoriously volatile. However, the low entry barrier and the ability to turn small sums into large gains have made them popular.
Can You Make Money in Penny Stock?
In a nutshell, yes, you can. The low pricing presents an opportunity to make huge gains through high-volume investments. However, this is not like selling your average stocks, and you will need to learn the pros and cons of the trade.
It is yet to be proven if one can trade penny stock for a living as while some traders have scored big wins in a stroke of luck, the vast majority suffer catastrophic losses. To minimize your losses, better understand the trading ups and downs as they are not very liquid, and finding a buyer when you want to sell your shares may prove to be a challenge.
How do Beginners Purchase Penny Stock?
First, let’s be clear. Most traders do not make money trading penny stocks, and you may want to share this information on your social media handles like Tweeter and Facebook.
Researching these stocks can be difficult as they are traded on unregulated exchanges and are a massive target of pump and dump schemes. Therefore, large investors have a chance of making a considerable return on investment while the small investors lose out.
That said, you can open an online trading account and speculate on the prices, giving you access to the thousands of stocks available for trading. It is advisable to test your trading strategies, risk-free, by using the demo account before trading live. The upside is, these stocks are cheap, meaning you don’t need a ton of capital to start your live trading experience.
Where Can I Purchase Penny Stock in the UK?
Typically, they trade over the counter (OTC) and are listed as a Pink Sheet Security and not on a formal exchange like the NASDAQ. A company is listed as a pink sheet if it fails to qualify for a major listing if it’s unwilling to disclose detailed financial information, or they want to avoid regulatory burdens. It is also a convenient way for foreign companies to access US investors.
As not all companies that trade OTC are penny stock, it is advisable to do your due diligence to identify which stocks are worth investing in and which ones are high-risk, to avoid them. The trick is to identify stocks with a high probability turnover and buy them before they make a move.
Before you begin your trading quest, you will require a contract for a difference (CFD) trading account. A CFD trading account enables you to speculate on the falling and rising prices of fast-moving financial markets globally.
How Do I Find Penny Stock?
To find penny stock worth investing in, you may need to use scanners and set them with specific parameters to identify. Some critical factors to consider are a high volume of stock and price parameters based on your financial capacity. Here are specific parameters to find stocks worth investing in:
- Breaking News
Look for stocks that are gapping up following a news break that could be profitable for the company. Stocks that are being bought out will result in a loss or breakeven, avoid them.
- Float
Stock volume is essential because when available in small amounts, there is a lot of buying interest, which could push the shares up quickly, which is what you need to look for.
- High Relative Volume
You want to invest in stocks that have high liquidity to safeguard your interests. The relative volume indicates the current volumes compared to past trading volumes over a specific period. To better buy penny stocks, get more information online.
Use Technical Indicators
One of the leading reliable indicators for penny stock is the use of technical analysis indicators. Some of the most reliable patterns to follow are:
- Price Dips – Penny stock are infrequently traded and have high volatility due to the uncontrolled purchase and sale movement. Price dips provide a good investment opportunity if followed closely.
- Gapping – Gapping is when a stock opens lower or higher than it traded the previous day; though it can sometimes be misleading, it gives the stock’s general direction. If gaps are higher, this indicates a bullish (upward) movement, and if gaps are lower, it shows a bearish (downward) trend.
- Candlestick Chart Patterns – Candlesticks show the short-term rise or fall of stock while also indicating if a trend is bullish, bearish, or about to reverse.
The Best Penny Stock Brokerage and Trading Apps
If you are undiscouraged by the risk that comes with trading in penny stock, it is vital to choose penny stock brokers. A brokerage and stock trading app in this case provides a convenient, easy, and cost-effective platform. Let’s look at some of the most excellent penny stock trading apps available that are ideal for you as a novice or an expert.
- TradeStation
TradeStation offers a fantastic trading platform with advanced tools, designed for active and expert traders. TradeStation gives you access to some of the best live-data tools available, allowing you to close and open trades conveniently from either your mobile device or desktop. TS Select and TS Go plans are commission-free up to 10,000 shares with a minimal fee after that.
- TD Ameritrade
The TD Ameritrade app is excellent for beginners and passive investors, available for both desktop and mobile. There are no minimum balances required, no commissions for non-OTC stock trades, and no recurring charges giving you a significantly discounted trading experience. However, if you intend to use this app, there is a $6.95 fee for OTC trades when considering your trading costs.
- E*TRADE
This a penny stocks app that requires no minimums and offers commission-free stock trades. However, for OTC stock trades, a fee of $6.95 is applicable. If you place over 30 transactions per calendar quarter, you get a discounted rate of $4.95. E*TRADE has a mobile app for both beginners and pros, and there is also a desktop version available.
- Charles Schwab
Schwab offers mobile and desktop features making it suitable for a majority of traders. Though Schwab is known for long-term investing and retirement, penny stock traders may enjoy a fee-free experience on this app with no recurring fees for the main brokerage account and no commissions for stock trades.
- Fidelity
Fidelity has an easy to use stock research tool, which puts it at an advantage. The desktop platform is full of trading tools and offers a low-to-no-cost experience for penny stock traders. The mobile app makes it easy to buy and sell penny stocks.
Best Penny Shares to Buy Now
It is difficult to determine the best penny shares to purchase due to the volatility of the market. That said, some of the possibly lucrative options to watch are:
- Rekor Systems, Inc. (REKR)
- Lantronix, Inc. (LTRX)
- Kinross Gold Corporation (KGC)
- Polar Power, Inc. (POLA)
- BOS. Better Online Solutions Ltd. (BOSC)
