The Basics of Buying Penny Shares in the UK

Source: thebalance.com

We’ve all heard about certain types of investment, whether it’s stocks, bonds or Bitcoin. It is a common belief (and for a good reason) that everyone should invest at least some of their savings into one of the most popular investment opportunities, since it’s been proven to be the best way to both save your money and make significant profits.

Considering the fact that inflation seriously impacts the economy, decreasing the power of dollars, one of the best alternatives is to choose the most profitable assets you can invest in, so that you can create a powerful stream of income that can eventually become your main source of income (if that’s what you want or if you become successful enough).

But if you are a newbie in the world of investing, it is going to be hard for you to indulge in the investing process, especially if you don’t have any prior experience nor knowledge about the topic. That being said, one of the first things you should do is do thorough research and find out as much as you can about making investments, types of investment you can make, pros and cons in general, the amount of returns you can get and so on. Why is this important? This is a crucial part of the process for various reasons – you can never be successful enough if you are not familiar with the topic, or even better – if you aren’t good at what you do.

However, one of the bigger reasons to get informed is more than simple – how would you know what to invest in, and what would be the best fit for you, if you don’t even know what existed on the investing and trading market in the first place?

One of the first things people discover when they start exploring investment options, are penny stocks. In case you haven’t heard anything about this type of investment, you should know that this topic is one of the most Googled topics right now. Let’s dig into it.

What’s so special about this type of investment?

Source: yahoo.com

When someone mentions the term penny stocks, the first thing that comes to people’s minds are stocks that are very inexpensive to get. Penny stocks were traded for $1 per share or even less in the past, which is how they got their specific name. However, over the years, the situation has changed and today this term means something somewhat different, compared to what it used to mean 5, 10 or more years ago.

According to buyshares.co.uk, penny stocks are usually being traded from $1, up to $10 per share, which is typical for smaller companies and their stocks, and which is also significantly cheaper, compared to other stocks and bonds. But it’s not just about the size of the companies that are in the penny stocks system. Something typical for penny stocks is the fact that they are somewhat volatile, and that both their price and value fluctuate more than other stocks fluctuate, either on a daily, monthly or yearly basis. But, this fact has its own benefits.

What’s great about this type of stock, is the great opportunity for investing, with no need for high investment capital. This means that you don’t have to own a lot of money to be able to start investing in companies, selling your shares when the price goes up, and become more experienced in trading, especially if you are a newbie in the game.

Source: pexels.com

This is why the vast majority of people who have never tried to invest in stocks, choose penny stocks over others. Thanks to the low prices of shares, investors can easily get hundreds or even thousands of shares, having to spend only a small amount of money as their initial investment.

Considering the fact that share prices are so low, it indicates the other important factor people have in mind when they try to pick the right investment opportunity. That factor is – amazing returns! As we’ve already mentioned, the benefits of penny stocks are mostly about being able to get big returns and making profits fast, which is definitely something many investors manage to take advantage of. Finally, such big returns are interesting for both beginners and experienced traders, since there are often huge runs over 70 to 100% in one day.

When you first start investing in Penny stocks your goal needs to be to multiply your or value in stocks over some time rather than to expect big growth in percentage in the first batch. Considering the fact that the majority of shares are the shares of companies that are not so successful and that have small market capitalisations, there is both opportunity and risk in these activities.

One thing you should know before you start investing in penny stocks, is the fact that you should always choose official markets and reputable sources for penny stocks trading because every other option isn’t that secure and doesn’t provide you with enough information (and most of the times, the companies don’t have enough liquidity either), which is something you should avoid, if you want to get a good return of your investments.

Source: corporatefinanceinstitute.com

In case you didn’t know this – many of the worldwide famous companies such as Ford, have once been in the penny stock system and people could buy their shares for under a dollar. Look where they are now! That being said, identifying the right opportunities (along with calculating the potential risks) is one of the most important things you should do.

If you have the right trading strategy, you can become a holder of a large percentage of shares, for a significantly lower price, which is, in some cases, a much better solution than being an owner of just a few shares or in other words – insignificant ownership in a company.

You can get started by choosing one of the reputable trading platforms, and creating an account. With penny stocks, everything goes pretty fast, so you will need a live account. After you’ve done thorough research and found the stocks that you think have great potential, you want to purchase them as soon as possible, just so you could wait for the right moment to sell. From that point on, you have to keep track of the prices going up and down, which will determine your next step. After your stocks have reached the target price, you can close your trade and continue managing your risks.

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