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Penny stocks and how to invest in them in Ireland
With potential for growth at a low cost, these investments can also be considered high-risk.
What are penny stocks?
Penny stocks are small-cap stocks that can be traded for less than £1 on UK stock exchanges or US$5 on US stock exchanges. While Ireland does not offer a definition for penny stocks on the Euronext Dubin, most retail investors define Irish penny stocks as shares trading for less than €1.
Because these stocks are priced so low, traded less often and have little financial backing, they’re referred to as penny stocks, over-the-counter stocks, or even micro-cap stocks.
Exchange-listed penny stocks
Here are a few examples of penny stocks that are listed on the Euronext Dublin or other major stock exchanges:
- Falcon Oil & Gas (FAC), the international oil and gas company
- Independent News & Media PLC, the Irish media organisation
- Aminex PLC (DOP), the upstream oil and gas company
- Tuesday Morning (TUES), the discount retailer
- Waitr Holdings (WTRH), the mobile food ordering company
- J. Jill (JILL), the women’s apparel retailer
- Apex Global Brands (APEX), the maker of Cherokee apparel and footwear
- iFresh (IFMK), the East Coast Asian and Chinese supermarket chain
OTC penny stocks
The majority of penny stocks are found on OTC marketplaces. They don’t require minimum listing, so they’re easier to list on. The main OTC marketplaces include the OTC Bulletin Board (OTCBB) — regulated by FINRA, and the privately-owned OTC Link, which has three parts: OTCQB, OTCQX and OTC Pink.
Not all brokerage accounts offer access to the OTC marketplaces. Some brokerages allow trades on large, foreign OTC stocks but not on OTC penny stocks.
Here are a few examples of OTC penny stocks:
- JCPenney (JCPNQ), delisted from the NYSE in May 2020
- Fannie Mae (FNMA), the US government-sponsored enterprise officially named the Federal National Mortgage Association
- Frontier Communications (FTRCQ), the telecom company
- Medical Marijuana (MJNA), a CBD oil pioneer whose CEO was indicted in a real estate Ponzi scheme
- CV Sciences (CVSI), another CBD oil manufacturer
- TPT Global Tech (TPTW), a telecom company deploying 5G in several central states
Pros and cons
Some of the benefits and risks of investing in penny stocks are:
Pros
- Low prices. Investors can hold a diversified portfolio of penny stock companies without spending a lot.
- Potential growth. Newly listed companies can often present great growth opportunities if you pick the right ones. However, it could be a bumpy ride to the top.
- Thrilling. Penny stocks often see quick, significant price changes, which can be exciting for investors in Ireland with a high risk tolerance.
- Day trading. Because of their large price swings, penny stocks are often used by active day traders.
Cons
- High risk investment. Companies with penny stocks often come with a shorter financial track record compared to other listed companies and exchange-traded funds. Not all companies that list on an exchange do well, and a lot of penny stocks never become anything more.
- Volatile. Penny stocks often experience extreme stock price highs and lows within a matter of days, or even within the same day.
- No income. Penny stocks rarely pay any dividends, as all revenue is usually reinvested back into the company to help it grow.
Penny stocks vs. blue-chip stocks
The opposite of a penny stock is a blue-chip stock. Blue chips are large, listed companies that have been around for a long time and have an established, stable financial track record. Some of the biggest and most well-known companies are considered blue-chip stocks, such as Apple and Microsoft.
While penny stocks don’t pay dividends in most cases, blue chips almost always do.
Should you invest in penny stocks?
You could consider investing in penny stocks if you:
- Have a high risk tolerance.
- Are an experienced investor.
- Are willing to cut your losses if the stock price falls significantly.
- Have a long investment timeframe and are willing to ride out the volatility.
Tips for investors in Ireland considering buying penny stocks
If you think you can handle the risks of investing in penny stocks, here are some tips to help you get started:
Do your research
This is important for all investments, but particularly high-risk investments like penny stocks. Blue-chip stocks are a low-risk option, with a long history of strong financial performance.
Plan a strategy and stick to it
Before you start buying, decide how much you’re willing to spend and choose the penny stocks you want to invest in. And if the stock falls, decide on a price you’d sell for.
Don’t let emotions guide your decisions
It can be easy to get emotionally attached to a penny stock, as they’re often the underdogs in your portfolio. But when the stock price continually falls, don’t make excuses as to why you should keep it — stick to your strategy and leave your emotions out of your decisions.
Don’t get sucked in by the “cheap” prices
Penny stocks may appear to be cheap compared to others listed on major exchanges, but don’t base your investment decision purely on price. Basic factors that influence a company’s stock price are the demand for its shares and the number of shares it issues. The less demand from investors or the more shares issued, the lower the stock price. So consider why penny stocks are priced so low.
How to buy penny stocks in Ireland
- Choose a stock trading platform. If you’re a beginner, do your research before choosing.
- Open your account. You’ll need your ID and bank details.
- Confirm your payment details. You’ll typically need to fund your account with a bank transfer, debit card or credit card.
- Find the stocks you want to buy. Search the platform for the penny stocks you want to buy. It’s that simple.
Compare online stock trading platforms for penny stocks
Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89 % of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Bottom line
Penny stocks are fraught with risk, but some have the potential to generate massive returns for investors in Ireland. Do some research before selecting a penny stock but don’t become blinded by the low prices. When in doubt, stop and ask yourself why it’s so cheap in the first place.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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