How to buy penny stocks: tips to get you started
Penny stocks, or penny shares, remain a firm favourite among traders. Check out our top penny stock trading tips for beginners – and find out how you can trade these shares with us.
What’s on this page?
What are penny stocks?
Penny stocks are shares that trade at a lower price range than most: usually less than $5. You’ll find that penny stocks trade at these levels because they’re often issued by companies who’ve just listed via initial public offering (IPO) (so they don’t have much trading history).
Trading penny stocks isn’t much different from getting exposure to mid-cap or large-cap companies. You’d still speculate on the value of the stock (CFD trading). The only difference is the typical cost of the shares and the company's market capitalisation.
Why trade in penny shares?
Penny shares offer a deep pool in which to fish. There are hundreds of penny stock companies that are often overlooked, and a handful of them end up being very big catches. Even Apple (AAPL) was once a penny stock.
Of course, there’s also the chance that penny stocks may not perform. Small mining and commodity exploration companies are a classic example of this. A few strike it lucky and find the next big metal or oil deposit, but many more spend a lot of money without finding valuable resources.
Lastly, penny shares are known to be more volatile than mid or large-cap shares, as small changes in their value are reflected as big price swings. If you prefer high-risk trading, penny stocks may be for you. Remember to implement a sound risk management plan when trading a particularly volatile asset, as losses and gains can run faster than expected.
Ways to get exposure to penny stocks
With us, you will be able to get exposure to penny stocks via CFD trading. We offer a wide variety of small-cap stocks, especially on our trading platform.
If you want to trade penny stocks, you’d use financial derivatives like CFDs. Derivatives enable you to speculate on penny shares without owning them. You can go long (buy) if you think the price will rise, or go short (sell) if you think it’ll drop. You’ll open your position using leverage, which means you only need to put down a deposit (margin) while still getting exposure to the full value of the trade.
Note that leverage magnifies your risk, as any profits and losses will be based on the full position and not your deposit. You should always take steps to manage your risk.
Open a CFD trading account to get started
10 penny stock trading tips
- Practise on a demo account: you can open a demo account with us and practise your penny stock trades in a risk-free environment. We’ll even give you $20,000 in virtual funds. Our demo account is a simulation of the live trading environment where you can apply indicators, different timeframes and more
- Keep a trading diary: a record of what went well, and where improvements need to be made, is a very important step in any trader’s strategy. Keep refining your methods to help you become a more successful trader
- Use fundamental analysis: you don’t necessarily have to buy penny stocks of new companies with no track record. You can use fundamental analysis to find out when certain business factors may affect share prices to a point that they become penny stocks
- Use a good trading platform: we have a cutting-edge trading platform that you can personalise for your own needs. You can choose between web-based or mobile trading. All of our platforms have powerful tools to help you reduce your risk
- Research thoroughly: find an experienced mentor willing to share their knowledge, read reputable trading and investing publications, or use our website for the latest analyst insights. It’s not uncommon for people to talk up a stock with misleading information before dumping their shares at a profit
- Consider quality over quantity: ‘cheaper’ isn’t always better. Penny stock traders risk getting caught out by value traps if they don’t do their homework. For a company to have the best chance of performing well in the future, it needs to be a good business. Ask yourself why the stock is overly-cheap – it may be that it simply doesn’t have any intrinsic value
- Spread your risk: don’t pile all your capital into one stock that you’ve heard is tipped for greatness. Spreading your cash across a range of companies could reduce your potential for loss
- Accept lower liquidity: liquidity will always be lower than on the main market, as there are fewer buyers and sellers for penny stocks. Try to look for companies that have a few hundred thousand shares traded every day so that you’re more likely to get an opportunity to trade
- Set ‘buy parameters’ for yourself: if you set a buy cap for yourself, make sure you stick to it. It’s easy to get carried away and end up paying more than a stock is worth. You can plan your entries and exists using our range of tools
- Be realistic: penny share trading is not a ‘get-rich-quick’ scheme. Remember that you face the same benefits and risks as with any other type of trading
Our online trading platform
We have an award-winning online trading platform that gives you a smarter, cleaner and faster way to trade and invest.1 You can use this platform to buy penny stocks via CFD trading and get our best execution.
Our mobile trading app
Our trading app has been voted Singapore's best.1 You can buy penny stocks on the go via this platform and still enjoy our best execution – with CFD trading.
L2 Dealer is our ‘direct market access’ (DMA) platform. You can deal at quote, straight through the order books of international exchanges. Plus, you’ll get access to level 1 and level 2 price data. If you use L2 Dealer to buy penny stocks, you can do so via CFD trading.
Trading in penny stocks summed up
- Penny stocks are shares that trade at a lower price range: usually less than $5
- Penny shares are known to be more volatile than mid or large-cap shares
- Get exposure to penny stocks via CFD trading. When CFD trading, you’ll speculate on the share price
- We offer a wide variety of small-cap stocks
1 Awarded the Best Online Trading Platform by Influential Brands in 2021.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
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