How to trade penny stocks in the UK
Penny stocks could be considered the Rocky Balboa’s of the stock trading world. It’s claimed that these stocks are often more affordable and offer traders and investors great potential for growth. Unfortunately, they’re also risky. These low-brow stocks are appealing thanks to an agreeable share price that usually starts at £1 in the UK. The companies with which penny stocks are associated are often small and low-valued, but they may have developed a concept that’s so good and/or applicable that it’s able to garner investment. These companies can usually go one of two ways; either they take off and reward their investors or they turn out to be absolute duds, thus costing their investors – hence their notoriety for being risky investments. However, in the modern climate of online trading, some feel that penny stocks could potentially be the ideal solution to your trading needs as they fall into the category of speculative investments. In a similar way that one might partake in spread betting or CFD (contract for difference) trading, which both involve estimating the value of an asset within an allotted time, investing in penny stocks also means hoping for something to come into fruition within a certain time.
How to purchase penny stocks
In the UK, penny stocks are all listed on the FTSE Alternative investment market (AIM) index. The performance of this index itself can be speculated upon by way of spread betting. That aside, if one wanted to purchase penny stocks on the UK market, here’s how they might go about it:
- One would first need to select a suitable and regulated trading platform after carrying out rigorous research.
- They can then open an account and if needs be, first use a demo account to become acquainted with how it all works.
- If comfortable and satisfied with the platform, one can elect to fund the account, which can typically be done by way of a bank transfer or debit/credit card.
- Finally, they have the option to find the shares they are interested in either buying or speculating on and elect to enter into a trade agreement.
Tips for purchasing penny stocks
It’s important that one always makes an informed decision. This is applicable to all investments and especially those that can turn out to be particularly high risk, which is what penny stocks are. It’s recommended that one should always discern between penny stocks and blue chip stocks, as the latter represents something lower risk but also something that requires an investor to be in it for the long haul. It’s also advisable to establish a strategy; once again, this is applicable to all investments. Prior to making an investment, one should do the required research before electing which penny stocks they might potentially like to buy and decide how much cash they are prepared to inject should they go forward with it. Also, it could be wise for one to decide prior to investing at what point they would sell if the share price was to drop, and stick to that decision. Another rule many traders and investors go by which is important to remember is keeping one’s emotions in check. With penny stocks it can be particularly easy to become emotionally entangled as these stocks are usually underdogs and everyone wants to support the underdogs. Thus, if the share price drops, one should remember their original strategy in order to protect themselves. Finally, one should be wary of the affordability of penny stocks as this is what makes them so appealing. Just because the going rate is good compared to other stocks, it doesn’t necessarily mean it’s the way forward. A low or affordable share price is indicative of the demand for those shares. Thus, one should always ask themselves why the share price is as low as it is.
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