How to Trade Penny Stocks Using Mobile Apps

Penny stocks are a cheap way to invest in a business, but they can be risky. Learn about penny stocks and the mobile apps you can use to invest in them.

If you are a high-flying risk-taker, investing in penny stocks might be an investment option to consider. Buying stock in these small companies comes with a lot of risk – in fact, it’s not uncommon to lose your entire investment if a company doesn’t survive. But the rewards can be significant for some investors.

Read on to learn more about the pros and cons of investing in penny stocks.

What are Penny Stocks?

Penny stocks are tied to companies with very small market capitalizations, typically below $250 or $300 million, according to the U.S. Securities and Exchange Commission. Technically known as “microcap stocks,” they represent some of the smallest public companies. If a company has a market capitalization of less than $50 million, it can be called a “nanocap stock”.

The SEC warns that buying penny stocks can be very risky. These types of stocks often trade infrequently and can be difficult to sell. Finding quotes for penny stocks can be tricky, making it difficult to assign an accurate price to them.

Every time you buy a stock, you risk losing money. But the SEC notes that with penny stocks, you need to be especially prepared to lose your entire investment.

Check out some of the best investment companies and find out how they can help you invest.

How are Penny Stocks different from other stocks?

Penny stocks can be quite different from other types of stocks. Overall, investing in penny stocks is often riskier than investing in shares of large companies. These companies tend to be new and not firmly established, the SEC notes.

Characteristics of penny stocks that separate them from large company stocks include:

1. Public information is scarce

It can be difficult to find public information about these very small companies. The SEC notes that this is often the biggest difference between microcap stocks and large company stocks.

For example, you may have trouble finding the types of reports that large companies routinely file with the SEC. Also, professional stock analysts don’t often research or write about these companies. This lack of information makes it less likely that quoted prices for these stocks are based on accurate information.

3. Registration standards do not apply

A large company must meet minimum listing standards before listing its shares on a stock exchange. These include having minimum amounts of net assets and a minimum number of shareholders.

Since penny stocks are traded over-the-counter, there are no minimum listing standards for these very small businesses.

4. Stocks are harder to trade

Penny stocks have low liquidity, which can make it difficult to sell them quickly. This means you can be stuck with a losing stock longer and could lose more money on your investment as a result.

5. Price movements are more volatile

Penny stocks tend to experience larger swings in their prices over shorter periods of time compared to stocks of other types of companies. Understanding this fact is especially important because you may find it more difficult to sell your stocks quickly.

6. The risks of fraud and misinformation are higher

Penny stocks are more vulnerable to investment fraud schemes. Since these stocks have a lower public profile than larger companies and do not trade on national stock exchanges, they are likely to face less regulatory scrutiny. This means that “buyer beware” applies particularly to these investments.

How much does it cost to trade Penny Stocks?

Penny stocks are generally cheap to buy, often under $5 per share.

A growing number of brokers now charge no fees when you buy penny stocks through online trading. Vanguard, Fidelity, Charles Schwab, and TD Ameritrade are just a few of the companies that offer this service.

You can pay more at some companies if you want to negotiate over the phone. For example, most Vanguard clients have to pay a $25 brokerage fee when trading over the phone.

Other brokers may offer their own fee schedules. For example, Interactive Brokers offers tiered pricing. Depending on the type of service you choose, trading can be free or based on a per share fee.

Can you make big money with Penny Stocks?

With penny stocks, you often buy a company early in its market journey and usually pay a low price. For this reason, it is possible to buy a penny stock and see the price of the stock increase significantly over time, which can earn you a decent profit.

Still, Penny stocks are also extremely risky. Your probability of loss – even complete annihilation – is higher than with other types of stocks. With many investments, the potential for great rewards comes with considerably higher risks. This is especially true with penny stocks.

Where can you trade Penny Stocks?

If you decide to get into penny stock, there are plenty of brokers that can help you trade. But a handful of online brokers could be particularly good choices. These companies – all of which have brokerage apps – include:

Charles Schwab. In addition to not charging commissions for online transactions, Charles Schwab offers an app that allows you to use your finger, face ID, or a preset passcode to verify your account. You can also transact with the app. And as we noted, this venture may make sense for investors who want access to top-quality research.

Loyalty. Fidelity does not charge commissions for online transactions. Download the Fidelity app and you can get quotes on Amazon Echo. Just ask Alexa for a quote anytime. MoneyRates reported that Fidelity is known for its “efficient trade execution, low-cost mutual funds, and top-notch research and tools.”

TD Ameritrade. MoneyRates noted that TD Ameritrade does not charge commissions on online transactions. It also does not charge monthly account maintenance fees and does not have a minimum account size. It also allows you to trade through an app. You can even use the app to get detailed stock quotes and follow the market through your Apple Watch.

T. Rowe Price. Another company that doesn’t charge for online transactions, T. Rowe Price also offers an app that lets you do everything from viewing account balances to making trades and researching investments. As MoneyRates noted in its review of T. Rowe Price, it has “one of the cleanest disclosure records of any brokerage.”

Avant-garde. Vanguard does not charge commissions for online transactions and is known for having the lowest fees. The company is rolling out a new app called Beacon that will let you “view your accounts, track performance, and perform certain transactions.” Need a little advice with your investment? Vanguard has one of the lowest management fees for an online scheduling service.

Who Should and Shouldn’t Trade Penny Stocks

Only investors with a high appetite for risk should consider investing in penny stocks.

Many experts urge investors to understand that buying penny stocks is generally much riskier than buying shares in more established companies. While a small business can disappear overnight, that’s an unlikely outcome for a giant like Walmart or McDonald’s.

If you buy penny stock shares in a company that does not survive, you could lose your entire investment. For this reason, you should think carefully before investing in penny stocks. And placing these stocks at the heart of your investment approach is very risky.

However, if you understand and accept the high level of risk associated with these stocks, you may want to take a chance on these stocks, as they offer the potential for outsized rewards for some lucky investors. Just understand that for many other investors buying penny stocks will be a losing business.

Advantages and Disadvantages of Penny Stocks

Advantages

Penny stocks have huge upside potential. By buying these shares, you are entering the “ground floor” of a small business at the start of its growth journey. These stocks are also cheap to buy. If everything goes well and the business becomes a big success, you could make a lot of money.

The inconvenients

However, such a result is the exception to the rule. According to the Small Business Administration, about two-thirds of businesses with employees survive at least two years and about half survive at least five years. If you invest in a business that fails, you could lose all the money you invested.

Frequently Asked Questions

Can I lose all my money buying penny stocks?

The risk of losses – even a total annihilation of funds – is high for those who invest in penny stocks. Many of these businesses are doomed, taking your investment with them. Only those with a high appetite for risk should consider investing in penny stocks.

How do I know if a penny stock is related to fraud?

The SEC notes that fraudsters can more successfully manipulate penny stocks than other types of stocks. Here are some warning signs that may indicate a fraudulent situation:

• A history of SEC trading halts on the stock
• Excessive “hype” about the title’s promise in emails and text messages, and on social media sites
• Dramatic increases or decreases in stock price for no apparent reason
• Insider ownership of large amounts of shares

What is a “pump and dump” system?

Penny stocks can be susceptible to “pump-and-dump” schemes in which scammers buy a stock, publicly promote its virtues, then sell it as soon as the price climbs, leaving other investors to hold the bag and suffer heavy losses. .