Penny stocks?

Sycrid88

Hi,

I am wondering if anyone can point me in the correct direction. I've been playing with virtual stock market games for a few months now and I'm wanting to start playing with a little bit of money (100GBP). I've therefore found some penny stocks that value at around 0.01 but I'm struggling to identify an online trading platform I can buy and sell on. Therefore can anyone help me with the following questions?

- Can you buy and sell penny stocks online?

- If you can, what are the best platforms for doing this?

- The penny stocks I have found are OTC, so is this why I cant find them in online brokers? 

If anyone can help provide some guidance that would be great. My aim is to hopefully make a transaction once a week (buy or sell once a week) to help with my learning.

Kind Regards, 

M

Old_Lifer

Reasons not to:

A very real risk of loosing a large part of your investment very quickly each time you do it.

The fees  would be significant with such small amounts invested.

bowlhead99

Yes you can buy penny stocks online. Penny stocks is a catch-all term for company shares of unsuccessful or unloved companies with low market values and it can be very costly to trade them because the buy price can be quite a bit higher than the sell price at a point in time (bid-offer spread) ; there is very little 'market liquidity' because this is not Apple Inc or Lloyds Bank plc where there are billions of shares or dollars of value traded each week.

The fact that they are cheap may relate to the fact that they have issued a lot of shares over the years which are all relatively worthless, though the price of the share does not tell you the overall value of the company; for example Lloyds Bank shares are 25p each and the whole company is worth £35 billion, while the share price of John Menzies is 75p (three times higher) while the whole company is only worth £60 million (about a six hundredth of the value).  The total company value is a function of the share price and how many shares are in issue, and it can be somewhat arbitrary whether the company chooses to have 1000 shares issued at £10 each or 100000 shares issued at 10p each. 

In the US, credible companies trading on the major exchanges try to keep their share prices reassuringly high (can't list a new company with a share price below $4 a share on Nasdaq) and only the ones who have had problems and risk getting kicked off the main markets have prices less than a dollar. If you don't trade on the main exchanges you don't have to follow all the listings rules so may have crappy governance, release limited information and generally be super risky to invest in.  Being delisted from the main markets and trading only on an OTC (over the counter) basis can be a first step to corporate bankruptcy ; the tier below that (pink sheets) does not even require your filings to be current or any SEC oversight.

If you are looking to buy things that are only trading OTC, the cheaper UK brokers will not touch them because if they are brokering trades on foreign markets, they only want to deal with shares trading on a real and credible main market stock exchange. If you only have a little money (e.g. £100) and you want to use it to buy a few shares, then:
- imagine buying 2500 shares at 1 cent per share (£25). The selling price at the same date and time might only be 0.8 cents (£20 for the 2500 shares) and it will probably have cost you £10 of broker charge or dealing commission to buy. So you will have spent £35 to buy the stock that is only worth £20 to sell.

- if you want to be able to get your £35 back you will need the company to rise in value so that the shares can be sold for £45 so you can afford the £10 broker charge or dealing commission to sell, and still get your £35 back in your hand. So the share price needs to rise from a selling price of 0.8 cents to 1.8 cents (a 125% gain) for you to get your money back.  How many weeks do you think that will happen in, 'to help your learning'?

Oh and that's before worrying about fx commissions to buy the dollars with your pounds to be able to buy the shares trading on the US OTCBB in the first place.

Linton

Penny stocks normally have a wide bid offer spread.  So if it  cost you 1p/share to buy you may only get 0.80p if you were selling.  Then as said you have the charges which are normally a fixed amount per deal, say £10.   So you spend £100. £10 goes on charges so you get 9000 shares.  The selling price has to go up from 0.80p to £110/9000=1.22p which is a rise of 52.5% from 80p just for you to break even.  And that ignores stamp duty of 0.5%.

Sycrid88

Thanks for the advice guys, I guess this shows that I've still got a lot to learn.

AMB07

I’d recommend Freetrade for this instance. There’s penny stocks here and no fees. You can buy and sell between the market open hours or place a purchase which will be done at 3pm the day the market opens

EdGasketTheSecond

If trades are Free how does the company make any money to provide service? You usually get what you pay for in life.

Reg_Smeeton

Use an online broker to purchase a Value Equity fund

SA100

EdGasketTheSecond said:

If trades are Free how does the company make any money to provide service? You usually get what you pay for in life.

They have a slightly higher spread. But still cheaper then paying £11.95 with hi.

Linton

SA100 said:

EdGasketTheSecond said:

If trades are Free how does the company make any money to provide service? You usually get what you pay for in life.

They have a slightly higher spread. But still cheaper then paying £11.95 with hi.

Doesn’t it rather depend on the size of your order? At what point does HL’s fixed price dealing charge become cheaper? 

Old_Lifer

And also  on the number of transactions it seems.       When you make  a large number  of deals, the charge  per deal reduces  according to HL's website.