Categories: Beginner's Guides

Penny Stock Trading: 3 Things to Keep in Mind

You might have heard about penny stocks before, and be drawn to them by their low prices. Penny stocks usually trade for less than $5 per share, in some extreme situations, the share price can be as low as ten cents. Their low prices don’t inherently mean you can jump into the penny stock world without knowing the basics.

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In today’s article, we will take you through things you should keep in mind in penny stocks trading.

1. Learn the basics

Learning the basics is essential before you start trading. For investors who want to seek a solid understanding of penny stocks on their own, online educational resources are an ideal option. Follow our website, we will continue posting tips and guides about penny stocks and the market stock today in general.

2. Develop a strategy

The best strategy should be the one considering your risk tolerance and trading goals. You may also look at factors like:

Economic indicators
Market news
Geopolitical events

Testing these strategies on the trading platform using a demo account with virtual funds is a great way to learn which ones will be profitable for you. Once you choose a strategy, stick to it as much as possible, especially when the market gets volatile. Do not let impulse take precedence over reason.

3. Diversify your portfolio

Penny stocks are usually priced low for a reason. Volatility, illiquidity, and lack of transparency are all risks to worry about. If you decide to buy penny stocks in the UK, make sure to let them stand just a fraction of your portfolio. Have a look at other investments such as CFDs, through which you can trade the price changes of stocks, indices, forex, and many other instruments without physically owning them.

Bottom Line

Penny stock trading involves a great deal of risk. You should always access and evaluate the fundamentals of a company before buying it. As mentioned above, preparation, practice and diversification will help you dive deep in penny stock trading.

You will need a brokerage account to invest in any particular stock. The best brokerage for stocks in the UK are among those authorized and regulated by FCA.