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How to Invest in Penny Stocks

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Penny stocks (also called micro-cap stocks) describe shares of a company that trade for low amounts. These stocks usually between $0.01 to $2.00. 

Penny stocks sound cheap, and are cheap, so new investors are often ready to leap in. The risk seems to be as low as the price. But the greatest gains in penny stocks grow over years, not days. Only the most patient investors will reap the rewards of this small investment.

Start with our guide to check out our top penny stocks and learn how to invest today.

What is a Penny Stock?

Many institutions consider a penny stock to be anything that trades for less than $5.00 per share.

Despite their price, penny stocks equal a bigger risk than regular stocks. The reason for inflated risk is simple. The companies that hold penny stock typically have no profits and minimal operations. They usually trade on the pink sheets or on FINRA’s over-the-counter bulletin board (OTCBB). They are not required to file with the Securities and Exchange Commission (SEC).

These stocks have low liquidity due to a lack of buyers and sellers, so orders may not be filled right away or even at all. In addition, volatility tends to be high among OTC stocks, and bid-ask spreads are frequently large.

People tend to be lured into penny stocks due to their cheap cost and the simple math of this type of stocks. That is, if you buy shares for $0.20, and if the stock goes up by $0.10, then your profit is at 50%. However, it’s just as easy, and likely, for your $0.20 share to go down by $0.10 and lose 50%.

Therefore, a $1,000 investment could lose value pretty quickly.

How to Invest in Penny Stocks

Okay, you’ve listened to the warnings, yet you still want to trade penny stocks. Now, it’s still possible to trade penny stocks successfully. However, 1st, you need to learn. Then, you trade.

You must be an educated investor who understands the market to successfully trade penny stocks. If you trade penny stocks successfully, they really can offer the greatest risk-reward ratio of any investment type.

The 2nd thing you must do is stay away from scammers. Read the fine print on any email or ad you see on social media and in emails. “Pennies to dollars instantly” is a great lead-in to a major source of pain—for you.

Step 1: Do your research

Make sure the penny stock companies you’re interested in are legitimate. Do your due diligence and look into companies before throwing a few hundred dollars at their cheap shares.

You can go to the Securities and Exchange Commission (SEC) website to see if the stock has been recently delisted from a major exchange. You can also get copies of the company’s most recent SEC filing to get an idea of the company’s overall financial health.

It’s important to understand how the company makes money. A stock screener can help you filter stocks based on criteria like price per share. From there, you can dig into a company more individually. Research does require additional time, but it increases your odds of success.

Step 2: Choose a broker

A little research online will net you quick results on which brokers are the best for penny stock aficionados. A bunch of online brokers charge extra for penny stock trades, which makes penny stocks mega-expensive.

You’ll want to find the best penny stock brokers who don’t include extra surcharges on these types of. A couple of brokerages that surfaced were TD Ameritrade and TradeStation, which charge nothing in surcharges. Per penny stock transaction, TD Ameritrade charges $6.95 and TradeStation charges $5.

It’s also worth it to know that TD Ameritrade doesn’t have a surcharge on large orders—around 1,000 shares or more. Watch out, a lot of brokers enact a surcharge on those large orders. In addition, some also require you to trade penny stocks by imposing limits on the types of trades you can execute

Best For
Intermediate Traders and Investors
Overall Rating
Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
Best For
Futures Trading
Overall Rating
Get started securely through TradeStation’s website
Best For
Futures Trading
N/A
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Best For
Options Trading
Overall Rating
Get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Best For
Advanced traders
Overall Rating
Get started securely through Moomoo’s website
Best For
Advanced traders
N/A
1 Minute Review

Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.

Get started right away by downloading Moomoo to your phone, tablet or another mobile device.

Best For
  • Cost-conscious traders
  • Novice traders
  • Active/Advanced traders
Pros
  • Free Level 2 market data for all users who open an account
  • Commission-free trading in over 5,000 different stocks and ETFs
  • Over 8,000 different stocks that can be sold short
  • $0 contract fee for trading options, no commission either
  • Strong market data and analysis tools with over 50 technical indicators
  • Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
  • No minimum deposit to open an account.
  • Active trading community with more than 100,000 app users
Cons
  • No phone or chat support

Step 3: Determine which stock to trade

A good starting point is to use tools that exist on the OTC Markets website or Finviz. Also, know that the OTC Markets Group organizes securities into tiered marketplaces that can help you determine which stocks to trade—which may help you determine potential success with your trades.

Step 4: Begin trading

Be sure you’re comfortable with losing money on some (or potentially all) of your trades.

Step 5: Join a day trading chatroom

You’ll be able to learn a ton in a day trading chatroom. Even better, get a mentor who really knows a lot about trading the stock market. Be comfortable making mistakes. Nobody is a great trader right away.

A great overview of pennystocking can be found at www.timothysykes.com. (If you’re into penny stocks, you’ve heard of Tim Sykes, who, by the age of 21, turned $12,415 of his bar mitzvah money into $1.65 million by day trading penny stocks.)

A List of Penny Stocks

Take a look at our list of penny stocks—both gainers and losers. Both tables update continually, so you can stay up-to-date on the best penny stocks.

Gainers

Session: Jan 22, 2021 4:00 pm – Jan 25, 2021 3:59 pm
Symbol Open Close Change Change % Volume
Buy EXPR Stock – Trade Penny Stocks EXPR
Express
1.79 4.05 2.26 126.25% 350.19M
Buy ATOS Stock – Trade Penny Stocks ATOS
Atossa Therapeutics
1.87 2.99 1.12 59.89% 96.98M
Buy SNMP Stock – Trade Penny Stocks SNMP
Sanchez Midstream Partners LP Common Stock
0.88 1.32 0.45 50.60% 12.91M
Buy ANY Stock – Trade Penny Stocks ANY
Sphere 3D
1.90 2.79 0.89 46.76% 25.78M
Buy VYNE Stock – Trade Penny Stocks VYNE
VYNE Therapeutics
1.88 2.64 0.76 40.44% 85.56M
Buy KIQ Stock – Trade Penny Stocks KIQ
Kelso Technologies Inc Ordinary Shares
0.69 0.90 0.21 30.28% 8.24M
Buy PSTV Stock – Trade Penny Stocks PSTV
Plus Therapeutics
2.43 3.09 0.66 27.16% 4.23M
Buy SENS Stock – Trade Penny Stocks SENS
Senseonics Holdings, Inc. Common Stock
2.31 2.91 0.60 25.97% 99.89M
Buy VTNR Stock – Trade Penny Stocks VTNR
Vertex Energy
1.28 1.61 0.33 25.78% 7.04M
Buy ACRX Stock – Trade Penny Stocks ACRX
AcelRx Pharmaceuticals
1.91 2.40 0.49 25.58% 28.42M
Buy AMC Stock – Trade Penny Stocks AMC
AMC Entertainment
3.51 4.39 0.88 25.07% 425.71M
Buy CHEK Stock – Trade Penny Stocks CHEK
Check-Cap
1.69 2.10 0.41 24.26% 48.10M
Buy CHS Stock – Trade Penny Stocks CHS
Chico's FAS
2.18 2.68 0.50 22.70% 7.33M
Buy SHIP Stock – Trade Penny Stocks SHIP
Seanergy Maritime Hldgs
0.98 1.20 0.22 21.92% 33.40M
Buy NVIV Stock – Trade Penny Stocks NVIV
InVivo Therapeutics Hldg
1.40 1.70 0.30 21.42% 23.37M
Buy TRCH Stock – Trade Penny Stocks TRCH
Torchlight Energy Res
1.65 2.00 0.35 21.09% 25.12M
Buy ITP Stock – Trade Penny Stocks ITP
IT Tech Packaging, Inc. Common Stock
0.79 0.95 0.16 20.66% 35.37M
Buy IFMK Stock – Trade Penny Stocks IFMK
iFresh
1.03 1.24 0.21 20.38% 5.46M
Buy SNDE Stock – Trade Penny Stocks SNDE
Sundance Energy
2.06 2.48 0.42 20.38% 1.58M
Buy TELL Stock – Trade Penny Stocks TELL
Tellurian
3.30 3.96 0.66 19.84% 48.17M

Losers

Session: Jan 22, 2021 4:00 pm – Jan 25, 2021 3:59 pm
Symbol Open Close Change Change % Volume
Buy XELA Stock – Trade Penny Stocks XELA
Exela Technologies
1.03 0.88 -0.15 -14.60% 31.82M
Buy CETXP Stock – Trade Penny Stocks CETXP
Cemtrex
2.37 2.12 -0.25 -10.36% 5.23K
Buy MKD Stock – Trade Penny Stocks MKD
Molecular Data
1.53 1.38 -0.15 -9.81% 25.79M
Buy GEN Stock – Trade Penny Stocks GEN
Genesis Healthcare
0.72 0.65 -0.07 -9.50% 4.56M
Buy NAKD Stock – Trade Penny Stocks NAKD
Naked Brand Group
0.44 0.40 -0.04 -9.28% 147.21M
Buy MOTS Stock – Trade Penny Stocks MOTS
Motus GI Hldgs
1.53 1.39 -0.14 -9.16% 4.03M
Buy HGSH Stock – Trade Penny Stocks HGSH
China HGS Real Estate
2.30 2.11 -0.19 -8.27% 47.57K
Buy SGRP Stock – Trade Penny Stocks SGRP
SPAR Group
1.38 1.27 -0.11 -7.98% 10.17K
Buy NXTD Stock – Trade Penny Stocks NXTD
Nxt-ID
1.27 1.17 -0.10 -7.95% 4.67M
Buy NVFY Stock – Trade Penny Stocks NVFY
Nova Lifestyle
3.38 3.12 -0.26 -7.70% 12.69K
Buy MYT Stock – Trade Penny Stocks MYT
Urban Tea
2.26 2.09 -0.17 -7.62% 52.13K
Buy PFMT Stock – Trade Penny Stocks PFMT
Performant Financial
1.23 1.14 -0.09 -7.32% 92.44K
Buy SNDL Stock – Trade Penny Stocks SNDL
Sundial Growers
0.64 0.60 -0.05 -7.31% 213.41M
Buy TENX Stock – Trade Penny Stocks TENX
Tenax Therapeutics
2.49 2.31 -0.18 -7.29% 1.10M
Buy DARE Stock – Trade Penny Stocks DARE
Dare Bioscience
2.92 2.71 -0.21 -7.21% 4.96M
Buy AIRI Stock – Trade Penny Stocks AIRI
Air Industries Group Common Stock
1.58 1.47 -0.11 -6.97% 46.12K
Buy MHLD Stock – Trade Penny Stocks MHLD
Maiden Holdings
2.47 2.30 -0.17 -6.89% 21.24K
Buy TLGT Stock – Trade Penny Stocks TLGT
Teligent
1.18 1.10 -0.08 -6.78% 3.24M
Buy AVGR Stock – Trade Penny Stocks AVGR
Avinger
2.13 1.99 -0.14 -6.63% 15.82M
Buy FORD Stock – Trade Penny Stocks FORD
Forward Industries
2.80 2.62 -0.18 -6.43% 44.19K

Take the Risk

Tim Sykes has been asked the question, “Aren’t penny stocks dangerous?” He answers, “Yes. And life is dangerous.”

Ultimately, educated and disciplined individuals can make money on penny stocks—but it takes training, a mentor and a major willingness to take on risk. Get started with your research and our list of the best penny stocks today.

Ready to start trading penny stocks? Check out the best penny stocks you can invest in right now.

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