Penny Stock investing had its moment in the sun back in 2020-2021 when markets were flush wish cash due to quantitative easing and huge stimulus packages driving up valuations of literally every type of asset.
Huge gains could be made by investors who got in on the right opportunity, but as the global financial system is trying to correct itself Penny Stocks as well as other speculative investments have suffered immensely.
The interest in Penny Stock investing has fallen off a cliff as we can see from Google Trends.
In this blog post, I am going to guide you through how you can invest in Penny Stocks from Ireland and most importantly the major risks associated with this type of investing.
Can you trade Penny Stocks in Ireland?
Many Penny Stocks that are listed/quoted on the NYSE and NASDAQ are readily available for Irish investors to trade with brokerages such as Degiro. Over 1,900 stocks that can be classified as penny stocks trade on these two exchanges. There are also many other penny stocks listed that trade on European and Asian exchanges.
This does not however cover all available Penny Stocks as many companies are not listed on public exchanges and are traded over the counter on the OTC Bulletin Board or Pink Sheets.
Another brokerage that will also allow you to trade both listed Penny Stocks and those traded over the counter is Interactive Brokers. Penny Stocks are not a default feature available on Interactive Brokers – you must go to your account settings and activate the United States Penny Stocks on your trading permissions.
A quick way to filter for Penny Stocks listed on the NYSE and NASDAQ
If you are trying to narrow down a list of available Penny Stocks, one method of doing this is using a stock screener. Finviz have a free tool that will allow you to quickly filter by many different variables such as share price.
What are Penny Stocks?
Penny Stocks is a term that is most commonly used to describe small publicly traded companies that trade for a stock price of $5 or less. These companies are usually not listed on major stock exchanges and can often be traded over the counter (OTC).
You may come across other terms such as OTCs and Micro Caps which people can used interchangeably, but note the definitions here are quite different.
A company defined as Micro Cap will usually have an overall market capitalisation of between $50-$300m – these companies can still have share prices of well over $5. OTCs refer to companies that are not tradable on traditional markets
The main appeal of Penny Stocks to retail investors is that you can buy up a large number of shares in a company with a low amount of capital invested and potentially profit from large increases in the share price.
The risks of investing in Penny Stocks
Investing in Penny Stocks comes at a much higher degree of risk when compared with investing in larger cap stocks. Often Penny Stock investing has a different ethos, with many investors willing to lose it all in the search for massive gains.
Investors should be aware of all the following risks that could have an adverse effect their Penny Stock investments:
High Volatility: expect to see huge price swings on your investments when you invest in Penny Stocks.
Lack of information: Many Penny Stock companies, especially those not listed on exchanges, will not have to comply with the same levels of public disclosure of financial information. This may make it difficult to carry out the appropriate due diligence on the company before investing.
Fraudulent Trading: Due to the small size of these companies, their share prices are much more susceptible to manipulation. This could be as simple as a couple of large social media accounts shilling the company to drive up hype and then pulling the rug from underneath the investors they have lured into their trap by dumping a large number of shares and sending the share price into a spiral.
Low Liquidity: When you buy and sell shares in companies such as Google you come to expect that your trade will be filled almost instantly as there is very high liquidity in the market and it is very easy to match up buyers with sellers.
This may not be the case for many Penny stocks which are difficult to price, you may end up in a situation where is it difficult to sell your position at a competitive price.
Alternatives to investing in Penny Stocks
If after reading the risks above you now are reconsidering investing your hard-earned money in Penny Stocks, then a better alternative may be to buy some fractional shares.
Fractional share investing allows you to buy small portions of expensive stocks – for example at the time of writing the share price of Tesla is $223. But with fractional share investing you can invest in Tesla with as little as €1.
The benefit of this way of investing is that you get to invest in well-established, highly liquid stocks, that will experience far less volatility and give you a bit more peace of mind that your capital is invested in a much safer place.
Disclaimer: This blog pos is for informational and educational purposes only and should not be construed as financial advice.