Hello there! You definitely know eToro, the leading social trading platform where you can trade instruments from various asset classes. However, when it comes to penny stocks, not all brokers give you access to trade this type of stock. So, if you have an account at eToro or are planning to open an account, you might wonder if you can trade penny stocks.
In this article, you will find out if you’ll be able to trade penny stocks on eToro and how to find them. We’ll also briefly discuss penny stocks and their risks and offer some tips we think might be helpful. So let’s get right into it.
What are Penny Stocks?
As its name implies, a penny stock is:
- A micro-cap company that trades at a very low price;
- Highly speculative and risky due to low trading volume, significant bid-ask spreads, and limited information availability;
- Appealing to many investors since they allow them to buy a large number of shares hoping that they are buying the next Amazon or Apple and expect a large price increase in the future.
Although penny stocks usually trade below $1, €1, or £1, the SEC changed the criteria to include all shares traded below $5. Some are traded on exchanges, whereas others are traded over-the-counter. As such, not all brokers give you access to buy and sell penny stocks. As described in the following sections, penny stocks can offer big profit opportunities. Still, on the other hand, you should be aware that you will be exposed to huge risks due to low liquidity, volatility, and lack of information.
It is worth noting that not all penny stocks are illiquid securities, and you might encounter a penny stock with a high trading volume. Some might be trading at meager prices following a sudden decrease in price due to many factors, such as stock splits and changes in the company’s operational outlook. Moreover, some companies have a large number of outstanding shares, and their stock’s fair value is within a low price range.
Some of the penny stocks currently available on the market and available on eToro:
- UK: Rolls-Royce, Lloyds Banking
- Spain: Banco Sabadell, Unicaja Banco SA
- Italy: Juventus Football Club, Telecom Italia
- France: Air France – KLM
- Germany: Aroundtown SA, Heidelberger Druckmaschinen
- Portugal: Banco Comercial Portugues
- US: Adamis Pharmaceuticals, Jaguar Health, Sundial Growers
Can you trade Penny Stocks on eToro?
As eToro gives you access to several global exchanges, it may include some penny stocks that trade on those exchanges among its offerings. You should be aware that you will not be able to trade over-the-counter penny stocks (OTC).
How to trade Penny Stocks on eToro?
To start trading penny stocks on eToro, you simply have to follow the below steps:
- Open an account at eToro. If you want, you can check our review before proceeding.
- After funding your account, you can check what you can trade on eToro by clicking on the “Discover” tab and selecting your desired exchange. Then, you can search for stocks trading at very low prices.
- We recommend in-depth research before deciding which penny stock to buy. You can check the historical prices to see whether the stock has been trading for some time below $5 or if it has plunged recently due to some information. You must also research the company to determine if it is worth the investment. As it is listed on an exchange, you can check its financial statements and website and read what analysts say about its outlook.
- Decide if you want to buy or sell the penny stock and click on the “B” or “S” button. Determine the size of your trade and then choose a stop loss and take profit levels. Once you have all this information, you can execute your order by clicking on the “Place Order” button on the screen.
- You can now begin monitoring your position and regularly checking the news for any company announcements or updates.
Penny Stocks Pros and Cons
- Probability of high returns
- Very low price per share
- You can get exposure to penny stocks with a very small amount of money
- Limited information available on the company
- Low trading volume
- Price easily manipulated
- Very risky investments
Penny Stocks investment tips
After giving this brief overview of penny stocks, including the risks connected with trading such instruments and the potential returns that you might generate, we will list a few of the best penny stock tips that might be helpful while investing in penny stocks:
- Do some research on the company: You should invest in something you are well aware of.
- Utilize Stop-loss orders: It is best to have a stop-loss order predetermined before entering a trade. As such, you would set a price limit that is considered the maximum loss you are willing to bear. Once this level is reached, it will trigger an automatic closure of your position.
- Keep the penny stock fraud scheme in mind. As we mentioned, some misleading information may circulate in order to inflate the price of penny stocks. So it is best to stay focused and update your order limits regularly. (This mainly applies to stocks trading OTC due to fewer disclosure requirements)
- Check the fees you are paying to buy and sell those penny stocks, and assess the cost/benefit of the trade.
Can I buy OTC Penny Stocks on eToro?
No, eToro does not give you access to trade OTC penny stocks. You can only trade instruments that are listed on regular exchanges.
What is the best Penny Stock?
There are no best penny stocks. Penny stocks are highly volatile and speculative investments, and you need to do appropriate research before investing in penny stocks.
Can you make money on a Penny Stock?
Although penny stocks are considered among the riskiest stocks on the market, you could end up with huge gains if you were able to invest in the right stocks.
Should you invest in Penny Stocks?
It depends on your willingness to accept risk, as penny stocks are considered highly risky, thus a high potential loss should be expected.