InvestingStock Market

Handy Guide To Picking And Trading The Best Penny Stocks In The UK

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For penny stocks traders, it’s business as usual despite the UK government lockdown through December 2, 2020. The shift to virtual trading gained tremendous momentum this year, helping to facilitate a boom in penny stocks activity. Throngs of retail traders have piled into the stock markets, driving tremendous trading volume alongside institutional traders. Not everyone knows that you can also buy US based penny stocks. Yes penny stocks investing is a big thing in the US also. Read more below…

Penny stocks differ markedly from traditional stocks on exchanges like the FTSE 100. For one thing, most penny stocks are traded OTC (over-the-counter), or on Pink Sheets. This means that they are not subject to the reporting requirements of the SEC (Securities and Exchange Commission), and the LSE (London Stock Exchange)

In order to stay listed on the NASDAQ or the NYSE, a stock must maintain a price above $1. If it drops below the threshold, it gets delisted.

The majority of penny stocks companies (SMEs) are in a fledgling state. They are microcaps, or nanocaps. In the United States, penny stocks trade at $5 or less, allowing for greater leeway in the number of stocks available for trading purposes. 

Penny stocks (shares) are inherently appealing on many levels. For one thing, they are cost-effective options that casual traders can easily add to their financial portfolio. They don’t cost a proverbial arm and a leg like blue-chip stocks listed on the S&P 500 index, the NASDAQ composite index, or the NYSE.

Unlike traditional stocks which have ‘limited’ price movements on a daily basis, penny stocks can move tremendously during the course of a trading day, particularly if groundbreaking news hits the markets. As a penny stocks trader, you are effectively cashing in with low-cost options at inception, before the meteoric rise to ‘high-value stockdom‘. 

A listing of the most successful penny stocks often takes traders by surprise. Consider that Apple Inc, Inc, Monster Beverage Corporation, Turtle Beach Corporation, and Ford Motor Company either began as penny stocks, or are pretty close to being considered penny stocks today.

What are the Best Penny Stocks Now?

Truth be told, it’s tough to advise traders about the best penny stocks. What was researched and published an hour ago may not be relevant by the time you read it. By their very nature, penny stocks are extremely volatile. Penny stocks have the potential for tremendous growth, but they can also move in the opposite direction. 

The risk/reward ratio is often what attracts traders to these financial instruments. In the United Kingdom, penny stocks trade at less than $1 per share, and the market capitalisations of these companies are less than $100 million.

A caveat is in order: The majority of penny stocks that you will come across will ultimately fail. Only a handful – the creme de la creme – succeed. The volatility of these stocks is a result of their low liquidity. In other words, only a small number of traders buy and sell the stocks. Any bit of news can cause penny stocks to hit the stratosphere, or crash spectacularly. 

It is your job as a trader to conduct the necessary research, seeking out companies with tremendous growth potential. The majority of SMEs offering low-cost stock options are relative unknowns. You’re not going to be reading about them, or hear about them until something big happens. Of course, many of these companies are mentioned in passing in the financial buzz, so pay attention.

Below are some penny stocks that you may want to look at. Remember, the stocks have a life force of their own. The impact of financial news, investor and trader behavior, company data releases, complimentary products and services, competing products and services, et al can result in a 180° turn in the performance of any stock, at any time.

  • DFFN – Diffusion Pharmaceuticals
  • SPCE – Virgin Galactic Holdings
  • EMAN – eMagin Corporation
  • CLVS – Clovis Oncology
  • TCCO – Technical Communications Corporation

This is a small sampling of stocks that have shown tremendous promise in recent weeks. Sometimes, stocks will get shorted, allowing for buying on the dip. If you go long on penny stocks, after buying on the dip you can make a handsome profit. A good way to get started with the best penny stocks is to look for obvious trends, such as rising prices, or falling prices. It is just as easy to profit from a falling stock as it is to profit from a rising stock. The key consideration is how you call it.

The thing that matters is that you conduct the necessary research, put in the time and effort, and make that trade. When you trade penny stocks, the key is not to get emotionally invested in your trades. Do not get attached to the company you are trading. Trading is for profit potential only. You can short stocks that you like and go long on stocks that you don’t like. It doesn’t really matter. 

This ultimately brings us to the most important points about trading penny stocks, and other financial instruments: Set clearly defined stop loss and take profit orders. Do not stay invested in a trade longer than you planned to. Be prepared for incremental gains rather than outsized gains – that way you will always stay one step ahead of the curve.

How the Right Penny Stock Hold Can Transform Your Financial Fortunes

Source: Finance! Yahoo Monster Beverage Corporation 

It is worth highlighting one particular NASDAQ-listed stock, Monster Beverage Corporation (MNST).  On 14 January 2011, the stock was trading at $3.03 a share – penny stock territory – and today it is trading at $83.89 per share. In under 10 years, the stock has appreciated 28 times. Put differently, a $1,000 investment in 2011 would be worth $28,000 today. 

That pales in comparison to a $1,000 investment in Monster Beverage Corporation in February 2005 when it was trading at $0.27 per share – a classic penny stock. $1000 invested in 2005 would be worth $311,000 today. If you were to extrapolate further back to the year 2000, MNST was trading at $0.03 per share. Today that same $1000 investment would be worth $2.7 million. That’s the potential power of penny stocks!

Where Can You Trade Penny Stocks?

The best way to trade penny stocks is where liquidity is highest. That’s why many professional traders advise against trading OTC, and with pink sheets. Liquidity ensures that there are enough traders to move the needle on the price. 

If a penny stock is sitting in No Man’s Land, nothing happens to the price. Top-tier trading brokerages and trading platforms including Interactive Brokers (IB), Stocks to Trade (STT), Fidelity, TDAmeritrade, and even Robinhood have gained tremendous popularity in recent years. 

Traders are encouraged to carefully assess the merits of each platform to ensure that it dovetails with your personal requirements. For example, Robinhood does not allow penny stocks per se, and accounts with less than $25,000 or GBP equivalent are subject to restrictions. 

Stocks to Trade is not a brokerage – it’s a trading platform that can be used with your broker. It features a powerful algorithmic stock identification tool known as Oracle. As its namesake suggests, Oracle is an AI-based constructed automatically sits through the biggest market movers of the day, making it much easier to choose viable penny stocks.

Read this next: Penny Stocks Trading Guide: The Best Courses for Beginners

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