What is Penny Stock?
How Do Penny Stocks Work?
Investing in penny stocks involves buying the ownership of a company through shares. Like any other stocks. Meaning that as the company’s value in question increases, so does your stock, and the vice versa is also true.
The difference with penny shares is that they come with added risks. Due to their susceptibility to higher price swings as well as having less liquidity. They are also issued by unproven and speculative companies, making them riskier.
The good thing with penny shares is that with considerable low capital. Such as £1,000, you can have large trading volumes of the stock. Giving you a significant share percentage in a growing company.
Some companies evolved into large brands, having started as penny stocks. Meaning that the growth of the company you buy the penny shares could generate earnings.
Investors of penny stocks earn through dividends. Or by selling them at a higher price than they bought the shares first.
How to Buy and Sell Penny Stocks
The most common way investors buy or sell penny stocks is the penny stockbrokers. It is not possible to buy shares from a company.
Here is where penny shares brokers come in handy. These brokers act as middlemen. Between the selling company and the investor buying the shares. Once you have bought your number of penny shares, you can trade them online. Through a desktop platform or a penny stock trading app.
How to Trade Penny Stocks
In most cases, penny shares come without regulations. As a result, selling and buying penny stocks is often subjected to scammers. Thus, traders need to exercise due diligence when investing or trading penny stocks.
This step by step guide gives an overview of how to go about penny stock UK trading.
1. Decide on the types of companies to invest in
Penny shares get linked to small companies without any reputation. Yet, you do not have to go for the new companies or those without any track record.
Do your research well, and pick companies that have a promising future. As far as earning profits concerns. Look for financial records, such as the company’s balance sheet or financial statement. To set its current value.
2. Do your research
Look for trusted sources to set the most suitable penny shares for you. There are people misleading others about stock prices. Using companies, after trading their shares at higher rates.
3. Conduct a Technical Analysis of the Market
The penny shares market, known to experience high price fluctuations of up to 20%. Coupled with extreme volatility. So, it is critical to make a technical study on the market before making a trading decision.
You cannot invest in penny shares because an online wave of traders is moving to the trade. And you do not want to miss out. An analysis of the market gives you insights into the best shares for your needs. Consider tools, such as a stock screener, to filter penny stocks as per your defined needs.
4. Get a suitable online brokerage or trading platform.
You will need a platform that offers a wide range of choices of penny shares. It would help if you observed the costs associated with trading individual penny shares.
High fees can eat up on your earnings, which is why you must go for providers with the lowest cost per trade. If interested in trading the prices of penny shares, you need a platform with real accounts.
5. Get Started
To get started, you will need to decide on whether you want to sell or buy. After making your choices right, you can place your first investment.
For example, if you anticipate a fall in the value of penny shares, you can go short and sell. A process the get known for shorting or short selling. If you are anticipating a rise in the value of the penny stocks. But then you can go long and buy. Going long represents a process known as long buying.
6. Risk Management
The penny stock market comes with very high risks. Investors, thus, use risk management strategies to lower or mitigate these risks.
7. Monitor and Close Your Position at the Right Time
After placing your trade, keep track of the stock’s price action. If your penny stock position is where your profits come from. Then you might want to close it upon the getting of the targeted price.
Over the Counter Bulletin Board (OTCBB) and Pink Sheets
These quotation services used by penny stock firms to display the sale prices. Real-time quotes, and any other data about securities traded in the OTC markets.
Without these services, traders can’t establish the trend of prices of penny shares. You will need to know the best stock rate if you want to buy the shares. Making the two services essential as for the prices of penny shares concerns.
How to Choose the Best Penny Stocks
Every trader is after penny shares with the best return on investment. But how do you pick the penny shares with the best earnings? Here are some tips for you.
1. Scrutinize the Company
Look for the significant percentage gainers in the penny shares market. Once you have a list of the best penny share companies, you can research each of them.
Check for insights of the company via google, website, reviews, and addresses. All these things can give you an overview of the company you wish to engage.
2. Consider the Long-Term Chart
Avoid one-time picker choosing the best company for penny shares. They can fool you into a trade of losses. Test the long-term charts to set whether the company has a reputation of multiple-day runs.
3. Check the Penny Stocks’ Volatility
Penny shares remain known as volatile compared to other forms of shares. Yet, as a trader or investor of penny shares, you want to go for the fast-moving stocks.
While penny shares volatility can be risky, expert traders consider it a good thing. Volatility, as you might know, reflects price action. Today, there are plenty of modern tools. You can use them to know companies rated as gainers for a profitable investment.
4. Examine the Catalysts
Penny Shares to Watch in 2020
Here is an outline of the best penny shares. The list includes some of the most significant percentage gains on the traded stocks in 2020.
- AFC Energy
- Oracle Power
- Dillistone Group
- Stanley Gibbons Group
- Richland Resources
- Eurasia Mining
- Image Scan Holdings
- Infrastructure India
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.