Best Penny Stocks UK Trading Guide

March 10, 2020 16:18 UTC
Reading time: 22 minutes

If you would like to learn how to start trading penny stocks and discover the best penny stocks to buy, then this Penny Stocks UK Guide is for you!

There is no doubt that the best penny stocks are volatile. After all, the very definition of a penny stock UK is a company whose share price is under £1 and for US penny stocks below $5. 

These can be young, growing companies whose share price could rise rapidly in a short period of time. If you're interested to learn more about this then keep on reading!

What are Penny Stocks?

Penny stocks or penny shares, as they are sometimes called, are defined as publicly traded companies whose stock or share price is trading for less than 1 GBP in the UK stock market, less than 1 EUR on European stock markets, or less than 5 USD on US stock markets.

In general, the companies have very low share prices which makes them more volatile and are, therefore, seen as higher-risk stocks. However, be sure to read on as there is an important distinction between a company whose share price is low because they are early on in their overall business journey and a company who has been around for a long time but has a low share price because it is cheap and unattractive to investors.

5 Best Penny Stocks to Watch

If you're looking for a quick list of some of the best penny stocks to watch then keep on reading! Remember that some penny stocks don't stay there for long and can easily start to move higher if more and more investors are attracted to the stock. So, you have to be fast but make sure you do your research beforehand!

Here is a list of penny stocks UK and US that trade on the major exchanges like the London Stock Exchange (LSE), New York Stock Exchange (NYSE), etc, at the time of writing in June 2021:

  1. Rolls-Royce (LSE), 98p
  2. Cineworld (LSE), 81p
  3. Lloyds Banking Group (LSE), 46p
  4. Southwestern Energy Company (NYSE), $4.94
  5. Ambev SA (NYSE), $3.42

As you can see in the list above, there are some very famous names trading as penny stocks UK such as Rolls-Royce and Lloyds Banking Group! These could be very interesting long-term value plays for some investors. 

Let's take Rolls-Royce as a penny stock to watch. 

Penny Stocks UK: Rolls-Royce PLC Research & Analysis

Rolls-Royce has a very rich history dating back to 1884. The company is now a major player in the aerospace and defence industry as well as, more famously, luxury cars. However, the share price has had a tough time over the coronavirus pandemic in 2020. This can be seen in the long-term chart of Rolls-Royce's share price below:

Admirals MetaTrader 5, RR, Monthly - Data range: from 1 Jan 1990 to 30 Jun 2021, performed on 30 Jun 2021, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.

It's clear to see the long-term downwards move in the company's share price. In fact, at current price levels, the share price is trading around its 30-year low! Incredible for a company such as Rolls-Royce which is now a penny stock UK.

Companies like these could be interesting for long value investing players. After all, the company has a responsibility to the shareholders to increase the value of the share price. Identifying your penny stock trading style is important and is discussed in much more detail further down this Best Penny Stocks UK Trading Guide, so keep on reading!

Investing in the Best Penny Stocks UK - Advantages & Risks

Many new traders often ask the question: can you make money in penny stocks? While it can be the case for some individuals there are risks with any form of trading and investing. The first step should always be to educate yourself regarding these risks and to think long-term rather than short-term (even if considering trading shorter-term strategies). This is because many individuals looking for a get-rich-quick type of scheme - which trading and investing is certainly not - tend to over-risk on their trades and wipe out their accounts.

Once these risks are realised, learning how to make money day trading penny stocks or even learning how to start trading penny stocks online requires a sound methodology and trading strategy. Further down the article, we go through an example penny stock trading system. However, it is important to know that short-term traders, such as day traders are attracted to penny stocks due to the volatility these kinds of stocks provide. Longer-term investors favour the low stock price as it could provide the possibility of significant growth in the future if they turn into blue-chip stocks.

How to Trade Penny Stocks Example

For example, the likes of Ford and Xerox started out as penny stocks. However, only a handful of penny stocks have reached these heights and this type of market is known to be extremely volatile and can often have very large price fluctuations in a day compared to blue-chip stocks.

This is because the low share price means the company is relatively small and early on in the growth cycle which means investing in the hope they could grow is highly speculative.

However, with a sound strategy and risk management principles some risks can be managed, but not all, so only trade with capital you can afford to lose. You can learn more in the 'Risk Management for Forex and CFD Trading' guide.

Fortunately, you can also access a FREE demo trading account from Admirals which will allow you to trade in a risk-free, virtual trading environment and start paper trading penny stocks until you are ready for a live trading account.

To open your free demo account, simply click the banner below:

Best Penny Stocks UK Broker: Admirals

Traditionally, penny stocks have not been listed on major stock exchanges and are often traded on the OTC, or Over the Counter, markets, such as the OTC Bulletin Board which is an electronic trading service operated by the Financial Industry Regulatory Authority. The minimum standards for companies to list here is not as high as companies listed on major stock exchanges, such as the NASDAQ or New York Stock Exchange, making these types of penny stocks highly speculative.

However, there are stocks that have low share prices listed on major exchanges. In fact, there are many stocks that trade under $5 on US stock exchanges that are available to trade on with UK and FCA regulated broker Admirals - not all UK brokers will offer penny stocks due to their volatility.

These types of penny stocks provide a bit more confidence to investors as the requirements to be listed on a major stock exchange is much higher, such as the need to have a minimum market capitalisation. If a stock drops below these minimum standards the exchange can delist the stock and it moves down to the OTC market.

How to Invest in the Best Penny Stocks UK

If you would like to learn how to trade penny stocks, as well as other stocks from the biggest stock exchanges in the world, the first step is to make sure you have the right trading tools and products to do so. This includes having the right platform, broker and stock trading strategy.

1. Who is the best broker for day trading penny stocks UK?

To buy shares in a particular company, you need to find someone who not only owns shares of the same company but is also willing to sell them to you. This is what your broker does for you. Through your broker's trading platform they route your buy and sell orders to other buyers and sellers through their connection with the stock exchange that lists the shares of the company you are trading.

As your broker will hold the capital you want to trade or invest with, it is important to choose the right broker, ideally one that offers the highest regulation and security as possible. For example, investment firms operating under the Admiral Markets trademark offer regulation from the UK Financial Conduct Authority, the Australian Securities and Investments Commission, the Estonian Financial Supervisory Authority and the Cyprus Securities and Exchange Commission.

With Admirals you can:

  • Open an Invest.MT5 investing account to buy shares and ETFs (Exchange Traded Funds) from 15 of the largest stock exchanges in the world.
  • Open an Trade.MT4, or Trade.MT5 trading account to trade via CFDs (Contracts for Difference) in order to go long and short a market to potentially profit from rising and falling markets, as well as access leverage of up to 1:500 for professionally categorised clients and up to 1:30 for retail categorised clients.
  • Access the fastest and most popular trading platform in the world, MetaTrader, for Web, Windows, Mac, iOS and Android operating systems.
  • Trade on multiple asset classes such as CFDs on stocks, indices, commodities, currencies and cryptocurrencies.

To open your live trading account, simply click on the banner below:

2. What is the best trading platform for penny stocks UK trading?

When it comes to trading having the right trading tools is essential. For new traders, it is worthwhile asking the question: how do beginners buy penny stocks? - rather than trying to follow how the institutional traders would. The first step is to choose the right trading platform of which there are quite a few to choose from. With the MetaTrader suite of trading platforms, provided by Admiral Markets, users can view current and historical prices of shares using stock charts, as well as trade directly from the platform - providing an all-in-one experience.

Admiral Markets offers the following MetaTrader trading platforms:

Through the above platforms, you can trade across stocks and shares from some of the largest stock exchanges in the world, access penny stocks that are trading on the major exchanges, and access other markets such as indices, commodities, foreign exchange and more.

Once you've opened your live, or demo trading account, and downloaded your free MetaTrader trading platform provided by Admiral Markets, you can now start to view the different stocks available to trade using the following steps:

  1. Open MetaTrader.
  2. Open the Market Watch section from the View menu at the top or by pressing Ctrl+M on your keyboard. This will open up a list of market symbols on the left side of your chart.
  3. Right-click on the Market Watch window and select Symbols or press Ctrl+U on your keyboard.
  4. This will then open the window shown below which details all the markets available for you to trade on.

A screenshot of the MetaTrader 5 Symbols window.

Now you can left-click on one of the symbols you would like to view and drag it on to the chart to view the current and historical price of the symbol you've chosen. From here, you can also open up a trading ticket:

  1. Right-click on the chart.
  2. Select Trading.
  3. Select New Order, or press F9 on your keyboard.
  4. A trading ticket will open for you to input your entry price, stop loss and take profit levels and unit size (volume).

A screenshot of the MetaTrader 5 trading ticket window.

To download your free MetaTrader 5 trading platform, provided by Admiral Markets, simply click on the banner below!

3. How to find the best penny stocks to buy

To identify penny stocks to trade online the first criteria is to identify US stocks trading below $5, UK stocks trading below £1 or European stocks trading below €1. You may find there are more opportunities on the US stock exchanges. For example, below is a list of stocks that are available to trade on with Admiral Markets on the American Stock Exchange:

A screenshot showing available stocks to trade on in the MetaTrader 5 trading platform provided by Admiral Markets UK Ltd, from the American Stock Exchange (AMEX).

In the above Market Watch window, the bid column is the sell price of the symbol and the ask column is the buy price. As you can see, there are quite a few stocks that are trading below $5. At the time of writing, this includes GSAT (Globalstar), NAK (Northern Dynasty Minerals Ltd) and many more.

After identifying these types of stocks on the different exchanges, the key question on which ones to trade will depend on the type of trading strategy you choose to adopt.

4. Best penny stocks UK trading strategies

A common question among beginner traders is: how does trading penny stocks work? Perhaps one of the best penny stock trading tips to know is that it is always best to follow a trading strategy that you are confident in. A trading strategy helps traders analyse the price of a penny stock, or fundamental information, for any clues on where the stock could move next. There are many different ways to perform this analysis and they generally fall under two categories:

  • Fundamental Analysis. This is the study of company-specific data and general economic data. Company-specific data includes analysing earnings per share announcements, sales, profits, new product launches and so on. Traders are trying to identify if the company is likely to make more profit in the future as that could translate into a higher share price as the company becomes more valuable. With traditional penny stocks, the information can be difficult to obtain. However, for penny stocks trading on the major stock exchanges, there is much more information available.
  • Technical Analysis. This is the study of price to identify patterns of buying and selling activity which could lead to possible entry and exit levels. The study of a share price generally comes down to using chart patterns, price action and technical trading indicators such as moving averages, MACD and many more.

While some traders will choose to specialise in one type of analysis, most traders use a combination of both when creating a trading strategy. The weighting between each depends on the strategy style chosen by the trader. These include:

i. Day trading penny stocks UK

This style of trading is where traders buy and sell shares within a single trading day and exit by the end of the day. It is rare for day traders to hold trades overnight. Traders would typically use the lower timeframes when making trading decisions. In the MetaTrader platform provided by Admiral Markets, you can view the one-minute, five-minute, 15-minute charts and many more different timeframes.

While day trading penny stocks seems attractive to many beginner traders it is very risky. This is because the trader has to process a large amount of data and analysis in a short period of time which allows for errors, frustration and drained willpower. Most new traders are simply not ready to take a high number of traders in a short-period of time. It's great if they all win but it is just as easy they can all lose. Perhaps one of the best ways to get started with a day trading strategy is to start off with a demo trading account. This allows the trader to practice their skills, methods and trading ideas in a virtual trading environment while seeing what it takes to trade such a style. Some other things to consider are:

  • Which penny stocks will you focus on?
  • What timeframe will you focus on?
  • What tools will you use to enter and exit trades?
  • How much will you risk per trade?

It is not uncommon for day traders to use a variety of different technical trading indicators to help with trading decisions. These indicators could be in the form of momentum and trend-based indicators. The 15-minute chart below is just an example of a possible day trader's setup, using different indicators and tools.

An example MetaTrader 5 layout for day traders using different technical trading indicators, such as the MACD, Stochastic and the MetaTrader Supreme Edition plugin provided by Admiral Markets UK Ltd.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Did you know that Admiral Markets offers an enhanced version of Metatrader that boosts trading capabilities? Now you can trade with MetaTrader 4 and MetaTrader 5 with an advanced version of MetaTrader that offers excellent additional features such as the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget - which allows you to buy or sell via a small window while you continue with everything else you need to do. Download it for FREE today by clicking the banner below!

ii. Swing trading the best penny stocks UK

This type of trading strategy involves traders holding stocks and shares for several days and in some cases several weeks. Swing traders will often use a combination of fundamental and technical analysis in their trading decisions with more weight placed on technical analysis and the use of technical indicators such as moving averages (a commonly used trading indicator when share trading online). Moving averages are used to help identify and confirm the overall trend of the market. This gives the swing trader the directional bias to trade in - long or short.

Swing traders will also often use overbought and oversold indicators such as the Relative Strength Index (RSI), Stochastic Oscillator and others. These help to identify overbought and oversold conditions in the market and therefore potential turning points where the market could change direction. Ideally, these indications would be in line with the overall trend of the market as confirmed by the moving averages.

However, they can also be used for reversal swing trading. This is where traders aim to identify the end of a trend by using indicators and oscillators to find reversal divergences between them and price. The daily chart below is just an example of a possible swing trader's setup, using different moving averages and other tools.

An example MetaTrader 5 layout for swing traders using different technical trading indicators, such as Moving Averages, Relative Strength Index and the MetaTrader Supreme Edition plugin provided by Admiral Markets UK Ltd.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

iv. How to start investing in penny stocks UK

Investing strategies have a lot of similarities to trading strategies. The biggest difference is the holding period. Investors typically look to hold shares for many months or years and try to capitalise on the potential for a long-term capital gain, or for a penny stock to turn into a blue-chip stock.

If you are thinking of taking a long-term view on penny stocks, or other stocks and ETFs from around the world, you may consider the Invest.MT5 account where you can enjoy benefits such as:

  • The ability to invest in thousands of stocks and ETFs from 15 of the largest stock exchanges in the world.
  • Open an account with just €1 minimum deposit and invest from just $0.01 per share with minimum transaction fees of just $1 on US stocks.
  • Receive free real-time market data, with no delays, at no extra cost.
  • Create a stream of passive income by collecting dividend payouts.
  • Use the world-renowned MetaTrader 5 multi-asset class trading platform.

You can get started right now by clicking the banner below and enjoying all of the features above and more!

You can learn more about different types of trading strategies in the ' Trading Strategies' guide.

Why Invest in Penny Stocks UK with Admirals?

  • Trade with a well-established, highly regulated company which includes regulation from the UK's Financial Conduct Authority.
  • Benefit from a negative balance protection policy, on some accounts, to protect you from adverse movements in the market.
  • Access the fastest and most popular online stock market trading software called MetaTrader which you can use on PC, Mac, Web, Android and iOS operating systems and is provided for free by Admiral Markets UK Ltd.
  • Open an Invest.MT5 investing account to buy shares and ETFs from 15 of the largest stock exchanges in the world.
  • Open an Trade.MT4, or Trade.MT5 trading account to trade via CFDs (Contracts for Difference) in order to go long and short a market to potentially profit from rising and falling markets, as well as access leverage of up to 1:500 for professionally categorised clients and up to 1:30 for retail categorised clients.

Get started today by opening a free demo-trading account so you can trade in a risk-free virtual trading environment until you are ready to go live! Click on the banner below to get started:

About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.