Penny Stocks in Europe: How to buy European Penny Shares

What are Penny Stocks?

As its name implies, a penny stock is a micro-cap company that trades at a very low price. It is highly speculative and risky due to low trading volume, significant bid-ask spreads, and limited information availability.

It is known that penny stocks trade at very low prices, usually below $1, €1, or £1. However, 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.

Penny stocks are 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 significant price increases in the future.

Some of the penny stocks currently available in the European market are:

• UK: Rolls-Royce, Lloyds Banking
• France: Nextedia, Solocal Group
• Germany: Meyer Burger, Leclanche
• Portugal: Sporting, VAA Vista Alegre
• Italy: A.S. Roma, Alfonsino
• US: Arcadia Biosciences Inc., Rewalk Robotics Ltd

Are Penny Stocks risky?

Although many penny stocks ended up with huge gains, it is essential to understand that they are high-risk investments with increased volatility levels. You may lose your entire investment in a penny stock or more if you buy it with leverage. Below are some factors contributing to classifying this type of stock as a high-risk investment.

• Limited information on the company: Information on some penny stocks can be complicated to find and might not be available from credible sources, increasing the potential for insider trading that is also not monitored.
• Low trading volume: As liquidity is low, you might be unable to sell all your positions at once when you want, and the bid-ask spread is usually high.
• Easily manipulated: Since the stock has a very low price, any investor can buy or sell a large number of shares, and speculators might manipulate the stock price.
• Bad reputation: Penny stocks are usually associated with negative connotations such as Fraud and scams. As we will show next, penny stocks can be a source of Fraud, as they can also be the next blue-chip company.

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, changes in the company’s operational outlook, or if the company has a large number of shares outstanding and the fair value of its stock is within a low price range.

Can Penny Stocks be a source of fraud?

Aside from the factors mentioned earlier, another major risk associated with penny stocks is that they might be subject to fraud. You are highly vulnerable to a “pump and dump” scheme. For example, last April, the SEC charged $194 million after discovering an international penny-stock “pump and dump” scheme. First, promoters accumulated shares in penny stocks through offshore companies. Then, as they got a majority of the companies shares, they used to run secretly funded promotional campaigns promoting the stocks to unsuspecting investors. As the campaigns led the stocks to higher inflated prices and demand increased, they used to sell their holdings and realize a significant profit.

Can Penny Stocks help you get rich?

It happens that many of the very large and well-recognized companies, also known as blue-chip companies, started trading as penny stocks. For example, NVIDIA in the US was trading below $1 in 1999 and reached a record-high level of $346.47 last year. Another famous penny stock is Monster Beverage Corporation (MNST), which traded for several years below 10 cents and is now trading above $90 per share. Eurofins Scientific SE is another European penny stock that was trading at €0.22, and now it is a CAC40 company trading above €87.

Despite those rosy examples, keep in mind that most companies won’t get you this kind of return, so you should not expect it by default.

Can you trade Penny Stocks in Europe?

Yes, you can trade European penny stocks, although not all brokerage firms offer access to this type of stock. Trading penny stocks is done in the same manner as trading any other traditional stock. You can buy your first penny stock after opening an account with a brokerage firm, and ideally, your broker will allow you to trade penny stocks on the same platform. Before they give you access to trading penny stocks, the broker might require you to formally acknowledge that you understand the high risks of buying similar shares.

In order to start trading European penny stocks, you simply have to follow the below steps:

1. Check if your broker offers access to penny stocks. Be careful; some brokers will charge you an additional fee to give you access to penny stock trading.
2. If your broker does not give access to penny stock trading, check with brokers who do. For example, you can check the list we compiled in the next section;
3. Research to find the right penny stocks. Keep in mind that investing in penny stocks comes with additional risks.
4. Decide if you want to buy or sell, define your trade’s size, and then choose a stop loss and take profit levels.
5. Monitor your position and regularly check the news for company announcements or updates.

Best Brokers for Penny Stocks in Europe

Penny Stocks investment tips

After giving this overview of European 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 share tips that might be helpful while investing in European 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 automatically close 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.

The Bottom Line

In conclusion, penny stocks are risky investments due to increased volatility, low trading volume, and limited visibility of the company’s financials and operations. Therefore, we believe that such stocks are suitable for investors with a high-risk tolerance (willing to accept the high risk and able to bear high losses).

European penny stocks are available on exchanges and over the counter, and you can get access to buy and sell those stocks via traditional brokers. You should just check if your broker is giving you access to penny stocks.

Did we answer all your questions? If not, or if you have any questions, feel free to leave a comment below.

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