Things to Know Before Investing in Penny Stocks

Things You Need to Know Before Investing in Penny Stocks and Shares UK

Are you considering penny stocks? Here is what you need to know before you start. In this article you will learn how to invest in penny stocks and some useful tips for beginners.

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How to define penny stock

The U.S. Securities and Exchange Commission (SEC) uses the term “Penny stock” to refer to a share issued by small public companies that trade at less than $5.

Investors find penny stocks attractive for these 2 features: the low entry barrier which allows them to buy many shares at a low price, and the potential for rapid gains.

How to find the best stockbrokers UK

Of course, you can buy a penny stock without a broker, but directly from the issuing company via a transfer agent. But this method is not beginner-friendly, as you may find it less responsive due to the lack of real-time market data and low liquidity.

So we suggest you invest via an online broker. The best stockbrokers in the UK are those that are authorized and regulated by the Financial Conduct Authority (FCA). Fortrade, for example, is a FCA-regulated broker offering CFD access to hundreds of instruments, including stocks, indices, metals and forex.

Tips for investing in penny shares UK

Trading penny stocks can be risky, so do not put all your eggs in one basket. You may try a diversified approach by adding other instruments, like blue-chip stocks, forex and gold, to your portfolio.
Learn the basics of stock trading. Use charts and tools to predict possible market trends and pay attention to live share price to make well-informed decisions.
Do the research about the company you are interested in. Evaluate its finances, competitive edge in the market and growth potential.
Before entering the real market, gain experience with a Fortrade demo account. You can do trading practice with 0 risks under live market conditions.

Final words

While there can be significant returns in investing in penny stocks, there are also equal risks. Penny stock investment isn’t for everyone. If you are willing to stomach the risk, find the best broker first. Make sure you do proper research and only invest money you can afford to lose.

If you decide to try other instruments, take a look at forex or CFD. They are volatile like penny stocks, and you can easily go short in a bearish market.