How to Invest in Top Penny Shares UK – Beginners Guide

Many investors see Penny Shares as attractive instruments as they are very cheap and affordable to buy. Penny Shares are at that stage of growth where they use to represent small companies, but before starting an investment do your complete research as these shares can be highly volatile so you need to be very careful.

In this article, we will discuss some top Penny Shares in UK and will elucidate how you can start to invest in them. We will also discuss what Penny Shares actually are and how to find best penny stocks for logical investment, what kind of research you need to do before buying it, best brokers for penny shares, and everything you need to know about Penny Shares will become clear from this guide.

What are Penny Shares?

In the UK trading, ‘Penny shares’ have a very broad meaning which does not size fit all definitions. The price of all the companies listed on the London Stock Exchange is given in pennies rather than pounds, that is why we can say that all UK stocks are Penny stocks. The stocks of UK Penny shares are priced below 1 Pound. The trade market of Penny shares is typically Alternative Investment Market(AIM) and sometimes they would be traded on the OTC markets.

Buy Penny Shares

Mostly Penny shares are the small companies that are not established yet. The reason behind this can be their recent launching or their business model is not proven yet.  If there is a chance that particular Penny shares will one day get listed on the London Stock Exchange, then it’s stock price is going to skyrocket.

However, all the stocks come with their own risks, Penny shares also have their own risks, as these shares are highly volatile with low levels of liquidity. And it is certain that the price of Penny shares can suddenly increase and it will become so difficult to find the buyer for these shares.

Tips to Buy Penny Shares

Tips to buy Penny Shares

If you are a newbie in buying Penny shares and are going to buy shares for the first time then having some advanced and pointers would be helpful for you before putting your money at risk. Before investing this is very crucial to know that only a few Penny Shares get successful and most of the time we find that company with an unproven business model hence, there is never any guarantee that these shares will be successful. Here are some share tips given for 2022.

Diversify your Risks-

Diversification is the most important strategy to buy Penny shares. Diversification in the stock market simply means that you invest in stocks for a large number of different companies without being overexposed to choose a few. The strategy of diversification watches your heap of shares come from a large number of industries and sectors.

This is very important in the Penny shares as you will find that the business model of the firm is focused on an unproven product or service. For example, if we take the aforementioned, Maestrano Group and Powerhouse energy Group that works in cloud computing and innovative spaces of waste-to-energy, respectively.

In order to make it clear, below is an example given on diversification in Penny shares.

  • You are having £1,000 to make an investment in Penny shares
  • In order to diversify as more as you can, so you will invest in Penny shares in 100 different companies 
  • This is clear that your maximum risk per Penny share is £10.
  • These 100 companies will come from different sectors restricted to Blockchain technology, renewable energies, medical cannabis research, and online retail. 

This is clear from the above example that the maximum you can lose per penny share is 10 euros. whereas, if you have a loose pocket to choose a stock following the same path to any huge stock then your investment would get increased.

Practicing Demo account-

If you want to trade your Penny stocks in a risk-free environment then you can open your Demo account with any brokerage account. In a demo account, you can trade Penny stocks just like you are trading on your real account. 

Investigate in-depth-

Before diving in for investment, thorough research is very important. To gain knowledge regarding penny shares find an experienced mentor who will share their knowledge. Read esteemed investing and trading publications. Try not to get trapped with any type of misleading information.

Use a good brokerage service-

Consider a trading platform that is fully FCA regulated and does not charge any commission. Choose the platform that consists of such kind features that help you to reduce your risk of loss. There are so many stockbrokers among which we need to choose one best stockbroker to buy these Penny shares and it can be time-consuming. Apart from offering Penny shares, the platform should be good at metrics such as payments, fees, commissions, and regulations.

Keep your stakes low-

While investing in Penny shares, the most important thing to keep in mind is keeping your stakes low. Although, there are many success stories showing that the share price of the companies has been increased by 3 or 4 figures in a duration of 1 year.

Nonetheless, there are major examples of the companies losing a plethora of 90% in their share value. Because UK Penny shares are at high risk. Considering these points in mind you should always keep your stakes low. In fact, it would not be more than 10% of your diversified investment portfolio into Penny shares. 

Top Penny Shares to Buy 

  • Maestrano Group Plc.
  • Robinhood
  • Petroneft Resources Plc.
  • Idox Group
  • Ebiquity
  • Powerhouse Energy Group
  • Verditek
  • Oilex Limited

In this part of the article, we will discuss the Top Penny Shares of the UK. In order to buy Penny Share, you need not worry about any rules. But, with the general agreement that the value of Penny Shares is at less than £1.

Given Below are some Top Penny Shares in the UK that you should know:

Maestrano Group-

Maestrano Group Plc. Penny Shares - Price Chart

Maestrano is a new British company that is looking to develop the Cloud computing space. Cloud computing is expected to rule the future of our communication and storing online data. Cloud computing is cutting-edge technology. Maestrano group small and medium businesses band it went public in 2018. At the start of this group, you would have paid 15p and suddenly after that, the shares hit the lows of just 1p.

The main aim of the Maestrano group is to obtain the attention of investors towards it. The share price of Meastrano Group is fluttering above 8p after the lows of 1p from 52-week, this shows the growth of over 800%.

Robinhood-

Robinhood Penny Shares - Price Chart

Robinhood is the top penny share to invest in.

The mobile app for Robinhood provides commission-free stocks and ETF trading was introduced in March 2015. It is an American Financial services company situated in Menlo Park, California. Robinhood provides deposits instantly.

Earlier it took 3 days to transfer funds through ACH transfer, but Robinhood credit users instantly for making deposits up to $1,000 Robinhood has also introduced a ‘Surcharge subscription’ that provides users up to $50,000 instant deposits. Only the trading ETFs and stocks listed in NASDAQ and NYSE are assisted by Robinhood. In 2020, Robinhood was having 13 million users. 

PetroNeft Resources Plc. 

PetroNeft Penny Shares - Price Chart

This company is based in Russia. PetroNeft Resources Plc is an international oil and gas exploration and production company focused on Russia. The shares of this company are listed on the Dublin ESM Markets and London AIM. Two oil and gas Licenses 61 and 67 are acquired by PetroNeft Resouces. Under License 61’ an investor is allowed to investigate and develop oil and gas in an area of 4991 km². and as per License 67’, an investor is allowed to explore an area of 2447 km². About $2.9 million of debt is converted into equity by PetroNeft. 

Idox Group –

Penny Shares - Price Chart Idox Group

Idox company is specialized in digital solutions and is based in the UK. This firm operates in 8 countries and employs over 600 people, this firm serves customers both in the UK and Internationally. The current value of Idox Stocks in terms of its status as a penny share is at just 49p.

The Idox Group’s penny share is growing very fast with the current market cap of over 217 million euros while back in 2000, the Idox share was priced at just 12p with a growth of 308%. The target of Idox can be its all-time high of 74p and it will show a growth of 51%. This is the reason why these shares are called the Best shares to buy now.

PowerHouse Energy Group-

Powerhouse energy group is strongly involved in the sustainable energy area. This firm has the power to produce clean energy from proliferating waste and is behind cutting-edge technology. 

The government continued to be influenced to keep the focus on the Powerhouse Energy group, green technologies. Verditek shares have been unaffected by the covid 19 pandemic and also has the year of stocks started at just 0.42p per share. In July the price of shares is 3.52p this shows strong growth of 758% in just 6 months.

Verditek-

Verditek is a company that specializes in solar energy. The firm helps in the domestic housing market, and military campsites. The current value of Verditek is just over 37 million Euros. Verditek had the worst in 2020 because of the covid 19 pandemic. At the start of the year, the price of these shares was just 3.50p. The price of the same penny shares in July was just 12.8p. In just 6 months of trading, these shares show a growth of 265%.

Oilex Limited-

Oilex was launched in Australia in 2003 but introduced on London AIM in 2006. In order to fulfill the growing energy demands of the people, the firm planned a strategy to use its commercial and extensive technical expertise to appraise, investigate, and form unconventional petroleum resources around the Indian Ocean Rim. 

Why buy Penny Shares?

There are a large number of companies that offer Penny shares and are always been unnoticed and some of them become very big at last. Such as Apple (AAPL) which once was a Penny share. Investing or buying Penny shares can be very risky as they are so volatile unlike any large-cap industry as even a slight change in their value can be very risky. Penny stocks are suitable for those who wish to invest in shares with high risk. Wherever you are trading a volatile asset where losses and gains changes rapidly and unexpectedly, then try to consider sound risk management. 

Low Entry Limit-

The low value entry price of Penny shares is a very important thing that attracts many investors towards it. This means that the cost of a single share is so low that you will end up buying a significant number of stocks. For Example, the initial price listing of ASOS was just 24p means that you invest 1,000 Pounds, then you would be able to get 4,166 shares.

Whereas, if we take an example of British American Tobacco then its current listing price is just 2,785p, this is to say that on investing 1,000 Pounds you will end up getting just 37 shares. In essence, if the company rises high in the future then it would be possible for you to own a much larger number of stocks in the company. 

Remarkable growth-

In order to make significant profits in the future people invest in Penny shares. The share whose value will increase in the future would be chosen by you could be a four-figure percentage return. But this achievement would not be attained by most of the Penny shares. So before investing in Penny shares, keep in mind that huge risks results in better rewards.

Although, it would be far better to go through the success stories of some penny shares to see how the companies who want to make it in the future could achieve substantial growth.

Risks involved in Buying Penny shares

Many of you must be thinking that the risks are low because the prices are low but Penny shares carry huge risks than the stock that are listed on major exchanges. By seeing this, it is obvious that the investor can lose their money irrespective of the amount he invested.

Trading Volume is low-

Buyers are very few in the case of the Penny stocks whether they are listed on huge exchanges or traded OTC unlike other stocks which are listed on NASDAQ or NYSE are heavily crowded with buyers who are completely ready to buy these stocks. If there will be no buyer the brokerage service will buy your stock knowing they would be able to sell their stock later. 

As stated by Simpson, “Even if that stock you bought for $0.10 is now worth $0.75, you can’t sell it unless there is another investor who is willing to buy it from you.” with Penny stock you would not be able to work out your gains instead you may be building profits on paper. 

Volatility is high-

According to Tyler Hardt, Chartered financial advisor at Pelican Bay Capital Management ‘Even a slight change in the stock price can make a gain of a huge percentage’ as the prices of Penny stocks are very low.  

For example, a slight move in share price such as from $1.00 a share to $1.50 doesn’t look so much but it shows a gain of 100%. Similarly, a small loss would result in a substantial percentage loss which makes the condition worst. This is the reason why most investors don’t invest in Peny shares because they are not able to manage such a high rate of volatility. 

Liquidity is low-

The transaction of Penny shares is not so easy because the market capitalization of Penny shares is quite low might be just a few million, unlike other major companies on the FTSE 100 list whose market capitalization is across multi-billion pounds.  So considering the Liquidity factor before doing an investment is quite important.

Buying your Penny shares might look easy to you but the case for selling is completely different. For instance, seeing your Penny shares growing and making a profit of 400% in a time duration of 1 week might sound good but you would not be able to work out your profits until you sell them.

Lack of knowledge-

Everyone who buys share in FTSE 100 stocks whether he is the owner of 1 share or owns a majority of stocks are on the same level of playing. This is to say that the data reported by the company is often done via the public domain. That is why everyone is acquainted with the same data at the same time. In case the company fails to do this then it will result in substantial sanctions and fines for the company. Nevertheless, the rules for the company’s information are not so strict which is why it is difficult to know the actual performance of the company.

Price Manipulation in Penny stocks-

The frauds of Penny shares constitute the the selling of the company by fraudsters via “Pump and Dump” schemes. In order to manipulate the investors who are new to the stock market and do not have any knowledge regarding this, they use a high-pressure sales strategy to mislead people to buy Penny shares and after that, they inflate the Penny share price using misleading data and attract more innocent buyers. This is ‘Pump’.

And after the prices increase high, thye fraudsters sell all of their shares and this is called a ‘Dump’. This disturbs the whole Penny stock price leaving everyone without anything.

Top Platforms to Buy Penny Shares

Now as we are aware of the advantages and disadvantages of Penny shares. We will now discuss the best stock brokers. There are so many stockbrokers among which we need to choose one best stockbroker to buy these Penny shares and it can be time-consuming. Apart from offering Penny shares, the platform should be good at metrics such as payments, fees, commissions, and regulations. Keeping these points in mind let us move forward towards these stockbrokers in detail.

eToro –

If you want to invest in Penny Shares then It is the best overall investment Broker in the UK. It came into notice in 2006, it serves online. More than 120 cryptocurrencies have access to eToro and more than 500 crypto pairs. You can store several CFD in this, it also allows you to buy any kind of traditional shares and trading shares. In eToro, minimum deposits start at $50 around 36.26 Euros.

On eToro you can instantly copy the portfolio of any investor. Although, eToro contains a number of copy portfolios which are made earlier.   eToro is always the first choice of many investors. This is the direct reason for the popularity of this platform, it has more than 15 million users all over the UK. It has the license of 3 key bodies namely ASIC, CySEC, and FCA.

In terms of fees, no other brokerage platform can compete with eToro. It offers 0% commission to its users, which means that you can buy shares from eToro without paying a single penny. It allows investment for just 0.75%. eToro also offers automated mechanical trading services.

The most important thing in eToro is that it allows you to invest small amounts regularly. It allows different payment methods for investing. The best thing about eToro is that it can be used by any investor even if he is new to the investing market, no prior knowledge is required to trade Cryptos with eToro. To save money in your account you have to make an account on eToro.

Pros-

  • It is the largest brokerage system in terms of trading.
  • It is good for newbies.
  • It charges 0% commission
  • It holds the license of FCA, CySEC, and ASIC
  • It is very easy to use and many more.
  • It accepts e-wallets, credit/debit cards, and bank transfers.
  • It has a minimum investment of just $50
  • More than 13 million users.
  • It also helps in trading CFDs.
  • It allows you to hold more than 120 cryptocurrencies and more than 500 crypto pairs.

Cons-

  • It only operates in US dollars
  • The withdrawal fee is just $5
  • Don’t have advanced technical tools.

Capital.com – 

In this broker you won’t be able to own the asset, only you can trade, it is specially CFD broker. It provides you the suppleness of opening an entity that you can afford. To buy and sell you will have a separate option. Not only can you invest during the hike of shares but when the shares go down then also you can gain profit.

You can also apply leverage while trading an asset. This can not be done with traditional shares. If you are a UK retail trader then the value will stand at 1:5 on stock CFDs. On the other hand, it will increase more if you consider yourself to be a professional-client. Without any commission Capital.com allows you to buy and sell assets.

Capital.com offers more than 2,000 shares and includes many of the best shares to buy. Capital.com is licensed by FCA so you don’t need to worry about safety. You can initial a minimum deposit of just 20 euros. The stock trading app of Capital.com leads you to trade with your phone.

The trading platform of Capital.com leverages Artificial Intelligence like few other competitors. Artificial Intelligence of Capital.com finds a market and probable trading setups and brings them to our attention. On this platform, you will get access to a charting interface with around 75 technical indicators.

In Spite of being diversified, Capital.com is very easy to use, the platform is personalized, you can also use this on your phone as a handy app for trading for iOs and Android. For trading and Investing services Capital.com is the best broker and provides a heap of resources for beginners. It is controlled by the Financial Conduct Authority of the UK. Through the Financial Service Compensation Scheme all the accounts of the UK are insured for up to 85k Euros.

Pros-

  • Charges 0% commission
  • Generate daily trade ideas
  • Trade hundreds of UK and US shares
  • Charting and analysis interface is excellent
  • Phone and Chat support for 24 hours. 

Cons-

  • Custom trading strategies can’t be built.
  • No basic information about the stock.

Steps to Buy Penny Shares in UK

Create your Account 

After choosing a broker platform to start trading Penny shares you need to make an account, the process of opening an account is similar for all brokerage platforms, only you need to provide some personal information such as – Nationality, Date of Birth, Full Name, National Insurance number, Home address, Contact details, Etc.

For buying Penny shares you would be using an FCA-regulated brokerage platform, you have to do your identity verification. If you are using eToro then this process would be completed within a few minutes. Only you need to provide a copy of your Driver’s license or Passport and utility bill or bank account statement.

Deposit Funds

After completing your verification process, you will be asked to deposit funds into the account of the broker that you have selected, Minimum deposits depend on the broker that you have selected. Plus500 and eToro require 100 Euros and $200 respectively.

In the case of eToro, you can make a deposit with the help of given methods-

  • e-wallets
  • Debit/Credit cards
  • Bank Transfer
  • Bank account transfer

Invest in Penny shares

Once you are done with fund deposits in your account, we will explain to you the process of buying Penny shares in the UK using eToro.

Firstly you need to decide which stock you wish to buy. Then enter stock name in the search box at the top of the page, now click on the ‘Trade’ button. So now in the order box, the price of shares which is less then £1, comes under the definition of Penny stock.

After that, a popup window will appear that requires you to write details about the Penny share and finally you need to enter the amount that you want to invest. Now at last click on the ‘Open Trade’ button and complete your purchase.

Frequently Asked Questions

Name the exchanges on which UK Penny shares are listed?

Most of the UK Penny shares are listed on the AIM. The Penny shares sub 1 Pound definition means that you would find this number on the London Stock Exchange. OTC (Over-the-Counter) markets are also used to trade Penny shares.

How to sell Penny shares in the UK?

To sell your Penny shares you need to sell them back to the broker that you used to buy them.

What is the definition of Penny shares in the UK?

The general agreement is that Penny shares are those stocks that have a value of 1 Pound or below.

What is the minimum investment for Penny shares?

As we know that the amount of investment changes from broker to broker for example charges a minimum investment of $50 into each stock. This means that if you invest $5,000 then you would be able to buy Penny shares in 100 different companies.