If you are new to the stock market, you may be thinking to start small – pick cheap stocks to buy. Unlike those biggest market cap companies, the cheap stocks can offer you unexpected opportunities to make a profit.

These cheap stocks are often called penny stocks or penny shares.

Why Buy Penny Stocks:

1. Accessible Entry Point:

Penny stocks provide a lower barrier to entry for you starting with limited capital. These stocks are often priced below £1, allowing you to build a diversified portfolio without substantial upfront investment.

2. Growth Opportunities:

Great penny stocks have the potential for significant price appreciation. As these companies are often smaller and less established, successful developments or positive market sentiment can result in substantial gains for investors.

3. Niche Sectors and Emerging Industries:

Investing in penny stocks allows you to access niche sectors or emerging industries that possess the potential for rapid growth. By getting involved in these areas at an early stage, you can seize opportunities to capitalize on future trends and advancements.

Risks to Consider:

1. Price Volatility:

Penny stocks are generally characterized by higher volatility than larger, more established stocks. Their low liquidity and smaller market capitalization make them susceptible to significant price swings, both upwards and downwards. You must be prepared for sudden and substantial fluctuations in the value of their investments.

2. Lack of Information and Transparency:

Penny stocks often lack the same level of available information and transparency as larger publicly traded companies. Conducting thorough due diligence becomes even more critical when investing in these stocks, as limited information can make it challenging to assess the company’s financial health, management, or growth prospects accurately.

You May Need a Demo Account:

Penny stocks can be potentially profitable and risky, that’s why you’ll be needing a demo account before diving into trading with real money.

A demo account allows you to practice your trading strategies and gain familiarity with the platform’s features without risking your capital. It provides an opportunity to test different approaches, understand market dynamics, and refine investment techniques before committing actual funds.

Fortrade, a FCA-licensed broker, offers online trading services to UK traders and investors. Sign up a free demo account with Fortrade to start trading.