Biggest Penny Stock Movers

The definition of a penny stock can vary depending on who you ask. Some traders use penny stocks as a synonym for over-the-counter (OTC) stocks or pink sheet stocks that aren’t eligible to be traded on major exchanges like the New York Stock Exchange or the Nasdaq. Others use a dollar level to determine what is and isn’t a penny stock, such as stocks under $5 or $1.

But regardless of the definition, you’ll notice a common theme in trading penny stocks — volatility. Penny stocks can offer great rewards, but those rewards come with great risk. Penny stocks are usually cheap for a reason, and many fail over the long term. Occasionally you might hit a home run with a penny stock, but most of the time they’re a better trade than an investment.

Who Benefits From Investing in Penny Stocks?

Anyone can benefit from investing in penny stocks, although they often appeal to new investors with limited capital to work with. However, penny stocks may not be the best approach for new traders. Penny stocks are volatile and usually require some knowledge of technical analysis since financial fundamentals on these companies can be hard to come by. 

Seasoned traders might be able to take advantage of penny stock moves, but predicting stock moves is difficult with established companies, let alone tiny ones with limited public info. Additionally, penny stocks often have low share floats, which makes them prime targets for manipulation. A common scheme works like this: a stock picker with a large following locates a thinly traded, low-float stock with a miniscule market cap. The stock picker builds a position in the stock and then pumps the tiny company to their legion of Twitter / YouTube / TikTok followers. Because shares are in short supply, the float is quickly bought up and the stock soars — at which point the stock picker exits and leaves their followers holding the bag.

Penny stocks are enticing because the moves can be exponential, but be honest with yourself. Buying these companies is a gamble, and the odds of finding the next GameStop (NYSE: GME) or AMC Entertainment Holdings Inc. (NYSE: AMC) short squeeze are low. Trade penny stocks; don’t invest in them.

Can Penny Stocks Make up Your Entire Portfolio?

You’d probably be no better off with a portfolio of penny stocks than you would with a portfolio of crypto alt coins and Super Bowl futures tickets. Penny stocks are valued as such for a reason, and many of them suffer from questionable accounting, poor management and non-existent profits. 

Designating a tiny portion of your portfolio for penny stocks isn’t a terrible idea, but set tight stops and be prepared to exit your position quickly. Establish ground rules for your trade before entering your position, and don’t put up more capital than you’re willing to lose. Penny stock moves are just as violent to the downside as the upside and you could see 50% of your cash evaporate in minutes.

Plus, you should apply your investing budgetary rules to penny stocks just as you would any other investment. If your strategy calls for only 5% risky investments, you can spend 5% of your money on something like penny stocks. However, you must spend 95% of your time watching these assets to know when you can sell and get out with a profit.

How Long Will Penny Stocks Stay Cheap?

Most penny stocks will remain cheap for the entirety of their existence because they don’t have much to offer the public. These microcap firms often have a handful of employees and dreams instead of profits. Of course, if a small company has a good product or strong service, it won’t remain a penny stock for long. But once again, usually these companies are languishing down here for a reason. They may spike from time to time, but it’s short-lived, and the price recedes as quickly as it popped. 

More likely than not, a penny stock will remain cheap or even fall so low that it could be delisted. Yes, you could lose money as a penny stock falls in price, but you might lose your entire investment if the price drops to $0 and the stock is delisted. Plus, the stock might become so questionable that the exchange chooses to delist it before the price bottoms out.

Compare Penny Stock Brokers

Take a look at some of our best brokers for penny stocks

Fidelity

Fidelity was the first discount broker with an online footprint, and it boasts some of the most affordable exchange-traded funds (ETFs) and mutual funds on the market. If you’re looking to trade penny stocks, Fidelity’s Active Trader Pro could be ideal since it provides real-time market analysis and direct order routing to guarantee the best possible price.

TD Ameritrade

TD Ameritrade has zero commissions on stocks and ETFs, a wide range of investable asset classes, and one of the most powerful trading platforms on the market — Thinkorswim. With the Thinkorswim platform, penny stock traders can find ideal entry and exit points, monitor trades in real-time and set automated systems that buy and sell equities based on pre-set criteria.

Charles Schwab

Charles Schwab Corp. (NYSE: SCHW) was one of the last online discount brokers to drop commissions on equities, and it is tailored more to high-net worth investors than penny stock traders. In fact, OTC securities do not fall under the commission-free structure, so you’ll pay to trade penny stocks that aren’t listed on major exchanges. Charles Schwab is a fine broker but probably not ideal for this type of trading.

TradeStation

TradeStation, on the other hand, is meant for the active trader. With multiple platforms for both desktop and mobile, TradeStation has a wide range of securities to invest in — everything from penny stocks to derivatives to cryptocurrency. TS Go is a mobile-specific trading account with no minimum, and TS Select is the zero commission standard account type. TradeStation is also a direct access broker, which allows clients to route their orders to their exchange of choice instead of the brokerage order desk.

Interactive Brokers

Interactive Brokers Group Inc. (NASDAQ: IBKR) is also a direct-access broker, which makes it a top choice for penny stock traders. Commissions are based on the size of the trade (bigger is cheaper), but the real power of the platform comes from its API tools that allow traders to build completely automated systems. Advanced traders can create a set-it-and-forget-it system to execute trades quickly and directly without slippage. If you’re looking to buy and sell thinly-traded securities at the best possible spreads, consider Interactive Brokers.

Compare Penny Stocks

Finding information on penny stocks can be difficult because they often don’t have an actual product or service to offer yet. And since some of these companies don’t trade on public exchanges, they don’t need to follow the strict requirements on financial reporting that those on exchanges like the New York Stock Exchange must adhere to. However, if you’re looking for info on penny stocks, Benzinga has you covered. Here are some of the top issues we’re looking at right now:

Penny Stocks Can Be Tantalizing, but Beware the Risks

Penny stocks are tempting because of the huge potential gains, but understanding the risks is crucial. Carve out a small portion of your portfolio for penny stock trades and keep your stops tight. Penny stocks move fast — a double up and 50% decline could occur in the same session. Know what you’re getting into with penny stocks. Treat these trades more like bets on football games than long-term investments.

Frequently Asked Questions