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Author: Marilyn Powell
Financial Analyst
Marilyn Powell

Penny Stock Trading

You will almost certainly have heard of penny stocks, they have after all been a part of stock trading for over 200 years. Penny stocks is a title that originated in the US, but in the UK you may know them as penny shares and in some countries, they are called cent stocks. They are all the same thing, low-value company shares, made available for purchase by investors.

Penny stocks are a perfect asset for stock traders because they are far more suited to fast trading transactions rather than buying and holding onto the shares in the way that some investors buy stocks in major companies. There are some downsides to them, they are particularly volatile, open to manipulation and have in the past been used for major frauds.

One thing you can to do protect your investment from predatory scammers is to trade only with a well-regulated, reliable broker. Finding the right broker can be a tough task, but that is something we can help you with. Our in-depth broker reviews cover every aspect of the operation and we only add them to our recommended list if they are legitimate and show evidence of providing a great trading experience.

Top Rated Stocks Sites

#1 - XTB: Best Overall

XTB Logo
9.8
Superb
Bonus Up-to $2000 Assets 270+
Min. Trade $1 *Payout % 92.76%
Over 270+ assets to trade now
Highly rated FCA licensed broker
Award-winning bespoke platforms
Loyalty rewards for regular traders
Demo account limited to four weeks
Education tools need improvement
Deposit Methods
Visa AMEX Klarna Neteller
170 visited this site today
XTB Review

Editors Summary

XTB is excellent for both new and regular Forex traders, there is a lot to like about XTB. With various licenses in many countries across Europe and so much positive buzz about them online, they offer everything that both the new and experienced trader needs. If you want to try out Forex for the first time you have access to a demo account and the site is intuitive. If you are going to trade on the move, you can use the xStation 5 mobile platform, but traders have a choice of this and the MT4 platform.

#2 - Admiral Markets: Best Free Demo

Admiral Markets Logo
9.3
Excellent
Bonus Up-to $1600 Assets 340+
Min. Trade $1 *Payout % 91.48%
Over 340+ assets to trade now
Motto “Secure, reliable, flexible”
Multiple currencies supported
Superb customer support service
Account types are complicated
High minimum deposit of $200+
Deposit Methods
Visa Klarna PayPal PaySafeCard
93 visited this site today
Admiral Markets Review

Editors Summary

Admiral Markets is a flexible broker that offers a range of trading platforms, multiple accounts and the option to move money between accounts in different jurisdictions. Using the latest technology, trade on either the MT4 or MT5 platforms from both desktop and mobile, which means that you can enjoy trading on the move. The site is intuitive, easy to use and full of information to help even the most novice of traders to get to grips with the website.

#3 - Saxo Markets: Best Mobile App

Saxo Markets Logo
9.1
Very Good
Bonus Up-to $1000 Assets 180+
Min. Trade $1 *Payout % 89.72%
Over 180+ assets to trade now
Broker services in 180 countries
Benefits for high capital traders
High-tech ‘SaxoTrader GO’ platform
Not a broker for newer traders
Limited customer support at times
Deposit Methods
Klarna PayPal PaySafeCard Skrill
38 visited this site today
Saxo Markets Review

Editors Summary

Saxo Markets is a legitimate broker that has been operating for many years. With the appropriate licensing and regulation, you can be confident that your money is safe. With an extensive array of Forex pairs including even the minors and emerging varieties, there is something for everyone. We are confident that this broker is an excellent choice for all levels of brokers and a good choice for those traders who like to trade in larger volumes.

Risk Warning / Ad Disclosure

Risk Warning: The products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. You should never risk money that you cannot afford to lose.

Ad Disclosure: Some of the links that you will find on this website are advertisements for which we do receive financial gain for referring new customers.

What Are Penny Stocks?

Penny Stocks

Penny stocks are company shares which are ‘floated’ on the stock exchange and available at very low cost. There may have been a time when they did cost a penny, but in modern times, the generally accepted value is under £1 or $5.

Penny Stocks Basics

Penny stocks are shares of companies that you buy and sell, when you invest you own the number of shares you purchase. Not to be confused with CFDs, where you effectively ‘trade’ on a price difference, but do not gain ownership of the underlying stock asset.

The Stock Markets

On the major stock markets you will find major listed companies and often hear about them on the news, the Dow Jones, Fortune 500 etc. Company shares that are not on any list are traded as mid-cap or penny stocks via minor exchanges like the Alternative Investment Market (AIM) section of the London Stock Exchange (LSE).

Market Volatility

By their very nature, penny stocks have two inherent characteristics, low liquidity and high volatility. Therefore, small market movements can result in radical price fluctuation. In short, this means that whilst it is possible to ‘pick a winner’ and reap big rewards, it is just as easy to make a big loss.

Brokers And Buying

Penny stocks are an OTC product, purchased from exchanges, so you need a broker to carry out the transactions for you. A lot of brokers avoid penny stocks, so even if you already trade binary options or Forex, it is quite likely that you will need to find another broker.

Trading Pros And Cons

Todays Top Traders
Trader Broker Asset Profit

The type of stock you will see listed on the world’s major stock exchanges (like the LSE or NYSE) is commonly referred to as ‘blue chip’ stock. This is high-value stock from some of the world’s biggest companies, generally priced for wealthy investors who often buy and then hold the stock for long periods.

There are substantial differences between these and so-called penny stocks, which are available only on minor exchanges like the AIM (Alternative Investment Market) via broker services. The majority of penny stocks are from unknown, newly-established businesses and are the complete opposite of blue chips in that they are low-cost options which are best bought and sold over shorter periods.

Naturally, these characteristics are what make them a great opportunity for stock traders to invest in. However, the penny stock market is much less liquid, meaning that any buying or selling instantly reflects a visible price fluctuation. This makes it doubly important to know exactly when to sell, even if it means a loss; a very strong trading strategy and high concentration levels are essential attributes if you intend trading.

Penny Stocks Tips

Defining a set of tips for traders is always a difficult task, but for this subject, there are enough to fill a book (there are plenty out there to prove it) and some will apply more to some of you than others. However, the list below is the ones we feel will help you the most:

  • Run a ‘fantasy’ portfolio – either on paper, or using a demo platform if you prefer and carefully analyse your performance
  • Read, read, read and learn – trading penny stocks requires more research and knowledge than other forms of online trading to achieve success
  • Quality not quantity – seek out the stocks that have potential, not just the ones that cost the least
  • Spread your investment – by this, we mean investing in a wide variety of stocks, not just one business
  • Find a good broker – mega important and please read our broker reviews for help with that
  • Reality bites – you will inevitably make mistakes, do not invest more than you can afford to lose and learn from that experience

When you first look at trading penny stocks, you may well experience that ‘kid in a sweet shop’ moment, but always remember that there is research to be done before you start investing randomly. You should also consider utilising robot trading software as the benefits can be significant.

Finding the right broker can be a tough task, but that is something we can help you with.

Which Broker to Choose

There has been a considerable amount of controversy surrounding penny stock trading in the past and you may already be aware that there are more scams in operation where penny stocks are concerned than with any other form of trading. Because of this and the fact that it is a difficult market to trade in at the best of times, the last thing you want to worry about is the reliability of your broker.

Whilst we cannot remove the high-risk element of trading penny stocks, what we can do is provide you with a list of brokers that we have carefully reviewed ourselves and are happy to recommend to you. Our review panel is made up of time-served traders and financial experts who know exactly what to look for and what separates a mediocre broker from a great one.

Top of our list is the broker’s licensing and its performance under regulation, closely followed by adherence to strict website security and data protection protocols. We like to see a robust and responsive trading platform on offer, with equivalents for trading on mobile devices, plenty of educational guides and a clearly defined fee structure, so that you can see the true cost of trading. Last, but not least, we test out the customer support network to ensure that if you ever have an important query or a problem, you will be looked after.

Our Review Rating System (More Info)

10% 10% 10% 15% 15% 20% 20% Pie Core
  • Account Types
  • Banking & Payouts
  • Bonuses & Promotions
  • Mobile Trading
  • Trade Types
  • Special Features
  • Customer Support
Expert Reviews

Frequently Asked Questions

FAQ

Are penny stocks legal and safe?

Whilst it is legal to trade in penny stocks, there are a lot of potential pitfalls and scams. We recommend you only trade with a regulated broker.

Can I trade without downloading software?

This depends on the trading platform the broker operates and if you intend trading on the move, you will need to download an app to your device.

Do I need to pay fees and taxes on profits?

The trading fees you pay will vary between different brokers, so always check T&Cs. You will also need to keep trading accounts, in most countries your profits will attract income tax.

Is penny stock trading hard or confusing?

It is no more difficult or complex than any other form of trading, provided you have acquired a sufficient level of knowledge before you start.

Can I test brokers before using real money?

The majority of brokers offer a demo platform or simulation to try your hand at trading before you invest. Some are time-constrained though, so always check first.

Top Rated Stocks Site

#1 - XTB: Best Overall

XTB Logo
9.8
Superb
Bonus Up-to $2000 Assets 270+
Min. Trade $1 *Payout % 92.76%
Over 270+ assets to trade now
Highly rated FCA licensed broker
Award-winning bespoke platforms
Loyalty rewards for regular traders
Demo account limited to four weeks
Education tools need improvement
Deposit Methods
Visa AMEX PayPal Neteller
129 visited this site today
XTB Review
Risk Warning / Ad Disclosure

Risk Warning: The products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. You should never risk money that you cannot afford to lose.

Ad Disclosure: Some of the links that you will find on this website are advertisements for which we do receive financial gain for referring new customers.

Meet The Author
Marilyn Powell
Marilyn Powell
Financial Analyst

Marilyn won’t mind us saying she’s our resident geek. She spends most of her time recommending various investments to her clients based on their financial goals and how risky an investment strategy they are interested in undertaking.

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