Investing in penny stock is quite challenging, especially if you are not well informed. This article is structured to guide beginners on penny stock trading. It explains what a penny stock is and answers if it’s a good investment for traders. Furthermore, the article explores how to buy penny stocks as a beginner, where and how to trade them, and if they are best for day trading.
What Are Penny Stocks?
These are stocks owned by small businesses that exchange for less than $5 a share. Although some of these stocks trade on big exchanges like the New York Stock Exchange (NYSE), most of them trade through over-the-counter relations via the automatic OTC Bulletin Board or private OTC markets Group. There are no trading grounds in OTC transactions and quotations are done electronically.
Can you Make Money Trading penny stocks?
Investing in these stocks is exceptionally risky and the majority of investors end up losing money. Although some traders get lucky and make a huge win, trading these stocks for a living is not proven.
Most scams arise from investors who claim to make a lot of money while trading pennies. Such traders depend on income from their subscribers to support their lifestyle.
They, therefore, say such things to attract subscribers, but when research is done, there is no evidence like tax returns to prove their success.
How do Beginners Buy Penny-Stocks?
Anyone wishing to trade on these stocks can do so through penny stock brokers. You can access more than 9000 shares using IG, including small companies in the US, UK, and others. A good number of penny stocks investors prefer to trade online using a mobile phone app or desktop device to access the trading platform.
A lot of people imagine becoming millionaires through day trading pennies. Investing in the cheapest stocks with small amounts of finances may yield huge returns.
However, making a living through these cheap stocks is harder than most people think. Quick return attractions draw many people to this trade. Sadly, only one active trader or a minimal number of them end up making profits.
A large number give away their funds to better investors. You can’t afford to lose huge amounts of money, so starting small is always a good idea.
Just like any other financial instrument, every aspiring investor can join this market. However, be careful and try as much as possible to avoid losses. The more you participate, the more you realize that only a handful of stocks make big moves every day.
The secret is learning how to find such stocks before making big moves. That should be your basis of trade and applying it carefully will yield attractive returns. Big investors use high volume, news catalysts, and float under 100 million as their criteria.
Any beginner looking to buy and sell penny stocks should consider online trading. With an online trading account, a penny stock trader gets an opportunity to engage in speculative investment. This is typically speculating on a share price or stock price before investing in penny stocks.
Therefore, opening a trading account is a vital step as it gives access to stocks. Beginners are advised to use demo accounts to test their strategies as it is a risk-free environment. Besides, it is also a useful platform for experts who wish to test new strategies.
Are Penny Stocks Good for Day Trading?
Day trading refers to an investment strategy where a trader looks to profit from short-term price changes of any financial asset. It is more of a short-term rather than a long-term strategy. Traders can engage in day trading of these common stocks, which are often regarded as stocks priced under $1. They are mainly traded in low volumes, making them subject to manipulations and may even be volatile.
It is worth noting that day trading on these cheap stocks invites risks and abrupt price movements may lead to huge profits or losses. Traders should, therefore, research thoroughly and monitor these stocks before investing.
Day trading on these cheap stocks is hazardous for more than one reason. The strategy behind day trading is to buy and sell a capital stock on a certain day and profit from the price difference.
However, when it comes to these stocks, the market is so thin. A tiny number of shares are exchanged daily compared to exchanges in big companies. This is the concept of liquidity in any financial asset like stock trading. Instead of liquidity, the concept is low float stock in these stock types. This indicates that very few stocks are available for transactions.
Besides, many professional investors with big accounts are forbidden to engage in this market since it’s highly speculative. As a result, these stocks become thinner to trade on and a predatory marketplace for retail investors. However, you can move the price of stocks with small amounts of money.
Where can I Trade Penny Stocks?
If you know how to trade penny stocks, but are wondering where this is for you. You can trade these stocks online using mobile apps. With an app, you can access the market anytime and anywhere. Here are some of the top apps that you can use.
1. TD Ameritrade
Traders can access the market using this amazing app. It excludes recurring charges except for a 6.95 fee if you are trading on OTC stocks. You can choose the premier Thinkorswim experience or the online and mobile app experience. The app is great for new traders and gives the best trading experience.
2. Trade station
It is designed for expert traders and professional instrument managers. Besides, it provides an ideal platform for numerous penny stock investors.
3. Fidelity
It provides mobile and desktop brokerage accounts without recurring charges, minimum deposits, and commissions for stock trades.
4. E*Trade
It offers commission-free services to stock traders and does not include minimum requirements to evade monthly fees. However, traders pay a $6.95 fee to trade in OTC. It reduces to $4.95 after thirty trades on every calendar quarter.
5. Charles Schwab
It offers its customers access to trade stocks via multiple exchanges like the pink sheet, over-the-counter markets, and any other stock outside major exchanges.
How to Trade Penny Stocks in the UK?
To sell or buy these types of stocks, you need to have an account. This trading is not so different from stock exchanges or share trading, which may be valued in pennies per share. The following guide explains the steps involved in trading penny stocks in the UK.
- Open an active CFD trading account: You can open a trading account with the CMC market to start trading by speculating changes in the price of these stocks.
- Research to get the best stocks to trade in: Utilise the available insight tools and market data to be educated on penny-stock trading.
- Choose buying or selling. with the help of your trading strategy, analyze your entry and exit points. Choose to buy if you feel like the asset price will go up and opt for sell if you anticipate a fall in price.
- Manage Risks: Include risk management techniques in your strategy before making your investment.
- Identify your position size and proceed to trade: Apply for risk management orders like stop-loss and take-profit before confirming your trade.
- Monitor your position and finally close the trade: If you enjoy profit on your current penny stock position, remain there, and follow that trading plan. Closeout once you achieve the target price.
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