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CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take a large risk of losing money.
If you want to learn how to trade penny stocks, then this article is for you. By the end of the article, you will have learned the following topics:
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Penny stocks are shares in companies that trade for less than £1 or €1 on the UK or European stock exchanges, or under $5 on the US stock exchanges. Basically, penny stocks have a very low market value, which makes them particularly vulnerable to volatility and therefore associated with higher risk.
Penny Stocks Trading Guide
For short-term traders, such as day traders, penny stocks are attractive mainly because of volatility. Investors with a long-term perspective prefer penny stocks because of their low market value. There is potential for big gains in the future if the stock becomes a premium stock.
For example, world-famous corporations such as Ford and Xerox began as penny stocks. However, only a few penny stocks have reached these heights, and the market is known for high volatility, but also for large price fluctuations compared to blue chips. The reason for this is the low market value for a relatively small company, which is still at the beginning of the growth phase. Consequently, investing with the expectation of a company’s future growth is highly speculative.
However, risks can be minimized with good risk management. For more information see our Forex and CFDs Risk Management Trading Guide.
Of course, you also have the option to trade for free on an Admiral Markets demo account. A demo account allows you to trade in a risk-free environment. In addition to many other financial instruments, you can also trade penny stocks, so you can first practice dealing with this asset class and then apply what you’ve learned on a live account.
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Basically, penny stocks are not listed on major exchanges, but are traded OTC (Over the Counter). For example, on the OTC bulletin board, an electronic trading service provided by the Financial Industry Regulatory Authority (FINRA), based in Washington. Standard requirements for the companies listed here are lower than those for major exchanges such as the NASDAQ or NISE, further contributing to the speculative nature of penny stocks.
However, there are also stocks listed on major stock exchanges that have a low market value. In fact, there are even a number of stocks available for trading at Admiral Markets on the US stock market for under $5. These penny stocks are more reliable for investors because they have met the high requirements for listing on the major stock exchanges, such as the required market capitalization. If the underlying asset falls below this minimum standard, the exchange can delist and drop that asset onto the OTC market.
If you want to learn how to trade penny stocks and other stocks on the world’s major stock exchanges, the first step is to make sure you have the right trading tools and products. This also includes the ideal trading platform, right broker and trading strategy for stock trading.
Not only can you invest in penny stocks as part of classic stock trading, but you can also trade them using contracts for difference (CFDs). This means you don’t buy them and then own them, but rather bet on their performance – either up or down.
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For both types of investments, you need the right broker. Through your broker’s trading platform, your buy or sell order is routed to other sellers or buyers on exchanges where the company is listed.
Since your broker also holds your assets that you want to trade or invest in, it is important to choose the right broker. Ideally, choose a broker that offers the highest regulatory standards and collateral. For example, Admiral Markets allows trading under the supervision of the UK Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), the Estonian Financial Supervisory Authority (EFSA) and the Cyprus Securities and Exchange Commission (CiSEC).
There are a number of different trading platforms available for trading. With the MetaTrader day trading software from Admiral Markets, users can call up current prices and historical price movements in chart form, but can also trade directly. So, the user gets all the important functions in one package.
The above trading platforms allow you to trade stocks on the world’s largest stock exchanges. You get access to penny stocks listed on the major exchanges, but also access to other markets such as indices, commodities, currencies and more.
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Once you open your day trading account or demo account and download the free MetaTrader platform offered by Admiral Markets, you can access the various stocks available for trading by following the steps below:
You can now left-click and drag the symbol on the chart to view current or historical prices. You can then place a new order directly:
To find penny stocks trading online, the first step is to identify US stocks trading under $5, or UK and European stocks trading under £1 or €1.
You will find that you usually have more choices in the US stock markets. For example, below you can see the list of US stocks available for trading on Admiral Markets:
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On the left side of the market watch screen, you can see the Bid column, which represents the current bid to sell, and the Ask column, which represents the current bid price. It is clear that a large number of stocks in the overview are trading at a price below US$5. At the time of writing these are Franklin Street Properties (FSP), GlobalStar Inc (GSAT), Gran Tierra Energi (GTE), Northern Dynasty Minerals (NAK), Condor Hospitality Trust Inc (CDOR), Ring Energi Inc (REI) and New Gold Inc (NGD) (as of October 16, 2020).
Now that you can identify penny stocks on various exchanges, the next question is which penny stocks you should trade. It depends on the specific trading strategy you are following.
A trading strategy helps traders analyze the price of a penny stock or gather fundamental information. This makes it easier to predict in which direction the foundation might develop. There are many different ways to do an analysis. Basically, they can be divided into two categories:
Although some traders specialize in one of the two categories, most traders use a mixture of both when developing a trading strategy. The weighting of each category depends on the trader’s trading style. These include:
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With this trading style, traders buy and sell their shares within a day and close the position at the end of the day. It is rare for day traders to hold positions overnight. Day traders tend to use short time frames to make trading decisions. On the Admiral Markets MetaTrader platform you can view 1, 5 or 15 minute charts and many other time frames.
Day trading penny stocks can be very risky, which is why we recommend you start with our demo account. You can then test your skills and trading methods risk-free in a virtual trading environment. What else to pay attention to:
It is not uncommon for day traders to use a wide variety of different technical trend indicators to help make trading decisions. The 15 minute chart shown below is just an example of a possible day trading setup using various indicators and tools.
Please note: the financial instrument charts in this article are for illustrative purposes only and do not constitute trading advice or an invitation to buy or sell any financial instruments (CFDs, ETFs, shares) offered by Admiral Markets. Past performance is not a reliable indicator of future results.
A Basic Guide To Stock Trading
Did you know that Admiral Markets offers an enhanced version of MetaTrader? You can upgrade MetaTrader 4 and 5 with the free MetaTrader Supreme Edition, which offers you great additional features such as a correlation matrix or a mini terminal. Download Supreme Edition now for free.
With swing trading, traders hold stocks and penny stocks for several days or sometimes several weeks. Swing traders often use a combination of fundamental and technical analysis in their trading decisions. First of all, technical analysis and the use of trading indicators, such as moving averages, are of great importance.
The daily chart shown below is just an example of a swing trader setup. Various moving averages and other trading tools are used for this.
Investment strategies share many similarities with trading strategies. The biggest difference is the holding period. Investors typically aim to hold stocks for several months or years to take advantage of long-term gains or wait for a penny stock to upgrade to a blue chip stock.
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If you are considering a long-term view of penny stocks or stocks and ETFs, consider opening a MetaTrader 5 trading account, where you will be able to enjoy the following benefits, among others:
Start opening now and click
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