How to buy penny stocks in the UK

As the name suggests, penny stocks offer potential growth at a low cost but are high risk.

Pros and cons of penny stocks Learn more
Compare platforms that let you invest in penny stocks Compare features

Penny stocks are an inexpensive way to diversify your investments and could multiply over time. But they’re also very risky investments because the companies are usually small, unestablished and fighting an uphill battle competing against other companies in their market. And yet, who doesn’t like an underdog?

Best for 0% commission stocks

Finder Award
Go to site
Capital at risk. Other fees apply.
Copy picks from top traders
  • Commission-free stock trades
  • Receive dividend payments
  • Invest in fractional shares

Best for fractional shares

Go to site
Capital at risk. T&Cs apply.
Personalised market updates
  • Commission-free trading
  • Invest in fractional shares
  • Over 5,400 stocks & ETFs

Best for US shares

Finder Award
Go to site
Capital at risk. T&Cs apply.
Try Plus free for 3 months
  • 0% commission on trades
  • Choose from 3000+ stocks
  • Real-time live pricing

What are penny stocks?

“Penny stocks” is a loose term to mean cheap, low-priced shares of small, often newly-listed companies. Investors are often attracted to penny stocks for their cheap prices with the hope that they have the potential to grow significantly, although there are risks involved.

The definition can vary between countries. Despite the name, you won’t typically acquire a penny stock for as little as 1p. In the UK, a penny stock is typically one that trades below £1. Meanwhile, in the US, a penny stock is one that trades for less than $5 per share. In some cases, a penny stock may slightly exceed these values if the company’s overall market cap falls below a certain level.

Some of the typical characteristics of a penny stock include:

  • Small company
  • Market cap below £100m
  • Newer company recently listed
  • Low share price
  • Limited financial track record
  • Doesn’t pay dividends

Can you trade penny stocks in the UK?

Yes, you can buy and sell penny stocks in the UK. Typically, they’ll be listed on the AIM market – a sub-market of the London Stock Exchange where small and medium-sized growth companies find their home. The main market of the London Stock Exchange is typically reserved for larger, better-established companies.

How can I invest in penny stocks in the UK

Here’s how to invest in penny stocks in the UK:

  1. Choose a share trading platform. If you’re a beginner, our table can help you choose.
  2. Open your account. You’ll need to verify your identity when you sign up.
  3. Fund your account. You’ll typically be able to use a bank transfer to send money to your trading account.
  4. Find the shares you want to buy. Search the platform for the shares you want and then click “Buy”.

What platforms offer penny stocks in the UK?

Quite a few of the UK’s share dealing platforms offer penny stocks. A good starting point is our table of share trading platforms further down this page. If there are particular penny stocks you’re interested in, make sure that your chosen platform offers them before signing up.

Why are penny stocks cheaper than blue-chip stocks?

In comparison with penny stocks, blue-chip stocks are large listed companies that have been around for a long time and have a solid financial track record. While penny stocks, in most cases, pay no dividends, blue-chip stocks almost always do. Because they are (comparatively) stable and lower-risk, blue-chip stocks are typically in higher demand and can afford to levy a premium.

Penny stocks, on the other hand, are more likely to be in tiny companies you’ve never heard of. They need to offer competitive rates to persuade you to take a punt on them.

Are penny stocks more volatile than other stocks?

Typically, yes. The types of companies that use penny stocks are usually newer, smaller companies with limited resources and little track record of delivering. While the potential for growth of such companies is high, the potential for failure is also high. So the value of penny stocks may shoot up…or it may crash through the floor. This may not be a linear pattern either. It’s likely that internal and external factors will affect the performance of a penny stock company more than a larger company with more contingency built in.

In short, buyers of penny stocks need to be prepared for the risk that they may lose everything on their investment.

Can penny stocks become regular stocks?

It’s possible, yes. Some of the world’s biggest companies – such as Apple – once traded in penny stocks. If you’d got in on the act in Apple’s early days, you’d be pretty chuffed with yourself now.

But for every huge success, many more penny stocks fail completely. So there’s no guarantee that the penny stocks you invest in will become regular stocks – or even continue to exist at all.

Are penny stocks worth investing in?

You could consider investing in penny stocks if you’re looking for a cheap investment, and:

  • You have a high risk tolerance.
  • You’re an experienced investor.
  • You’re willing to cut your losses if the share price falls significantly.
  • You have a long investment time frame and are willing to ride out the market volatility.
  • You’re happy to take a bit of a “gamble”.

What are the alternatives to penny stocks?

If you’re tempted by penny stocks primarily because of their low price, then it might be worth considering alternative cheap investments. After all, if a stock ends up worth nothing, then you’ve still lost 100% of your initial investment, regardless of how cheap it was to start with.

If you’re keen to invest in the stock market but don’t have enough money to buy many full shares in big companies, there are a couple of lower-cost alternatives:

  • Fractional shares. When you buy shares in a company, you buy a little slice of it. A fractional share is a slice of a slice of company pie. The original slice was the “share”, but if you cut that slice in half, you have 2 fractional shares instead. Technically, there’s no limit to how many splits you can make. An increasing number of share dealing platforms offer fractional shares as a way to give investors with lower funds access to stocks they wouldn’t be able to afford otherwise.
  • Index funds or ETFs. These 2 types of funds work slightly differently in how they’re traded. But both types of funds track stock market indices – such as the FTSE 100. By investing in one of these funds, you’ll get exposure to all of the companies in the underlying index in one fell swoop.

What are the main advantages of investing in penny stocks?

There are a few advantages to investing in penny stocks. First, they’re cheap. You can pick up a fair amount of shares in a company for not very much money. This could be tempting for those without much money to invest. (But read the main downsides of penny stocks before you get too excited.) Secondly, they offer the chance of making you a mountain of cash if that little minnow of a company turns out to be the next Apple or Amazon. Plus, if you’re feeling more altruistic, penny stocks do give shiny new companies a way of raising funds without which they wouldn’t have a hope of succeeding.

Penny stocks can also be exciting territory for day traders, who are more likely to relish the opportunity for profit that penny stock volatility can offer. This is territory best trodden by experienced and knowledgeable investors, though, as it’s all too easy to time things badly and make substantial losses.

What are the main downsides of investing in penny stocks?

Well, there’s a reason that penny stocks are so cheap – it’s all too easy for minnows to lose their way in the pressured and crowded journey upstream. That high volatility we mention above means there’s a pretty high chance that, even with legitimate companies, you’ll lose money on your investments, and a high number of penny stock companies fail completely. The penny stock arena can also be the territory of scammers looking to make a quick buck off of your desire to, well, make a quick buck.

Both of these factors mean you should always proceed with caution before buying any penny stock.

Can you make money on penny stocks?

It’s possible, but you’d have to either know exactly what you’re doing or get extremely lucky. If you see a small company that looks like it’ll soar and you like what it’s doing, you can invest with the hope that it will. If it does soar, then you can make a big profit, if not, you won’t.

How much do you need to start investing in penny stocks?

Penny stocks are typically worth less than £1 (or thereabouts) in the UK or less than $5 in the US. So, if you only buy a single share, technically, you only need to spend this much. You’re unlikely to strike it rich on this basis, though, even if the company is wildly successful. Plus, you’d need to choose a share dealing platform that permits a low minimum investment level. There are plenty that have a minimum investment of £10 or less.

Are penny stocks regulated?

Stocks themselves aren’t regulated per se. Instead, the UK’s Financial Conduct Authority (FCA) regulates financial services markets, including exchanges, brokers and share dealing platforms and investment platforms and brokers.

However, it is fair to say that penny stocks traded on the AIM market have fewer restrictions than stocks traded on the Main Market of the London Stock Exchange.

To be listed on the Main Market, a company:

  • Must have existed for at least 3 years
  • Must have a market cap of at least £30,000,000
  • Must have enough working capital for at least one year of trading
  • Must be willing to float at least 10% of its share capital.

AIM stocks don’t have any of these requirements. This is one of the factors that makes them inherently risky.

Tips for buying penny stocks

Danny Butler

Finder insurance expert Danny Butler highlights his tactics for investing in penny stocks

Penny stocks are very different from ordinary shares and need to be treated with a healthy dose of educated caution. Follow these tips to maximise your chances of success.

1. Do your research

This is important for all investments, but particularly higher-risk investments such as penny stocks. Blue-chip stocks are, by their nature, lower-risk options as they have a long history of strong financial performance.

2. Plan an investment strategy and stick to it

Before you start buying, decide which penny stocks you’re going to invest in and how much you’re going to invest in each one. Also, decide what price you’d sell at if the shares were to fall. Stick to your investment strategy guns if this does happen to avoid the “I’ll just hold a little longer and see if the price jumps back up” mentality. The same applies to gains.

3. Don’t make emotional decisions

It can be easy to get emotionally attached to a penny stock, as they’re often the underdogs in your stock portfolio. So when their share price falls and falls some more, you can find yourself making excuses as to why you should keep holding. This is why it’s important to make and adhere to a strategy, so you leave the emotions out of it.

4. Don’t get sucked in by the “cheap” prices

Penny stocks may appear cheap compared to other shares listed on the LSE but don’t base your investment decision purely on this. One factor that influences a company’s share price is the demand for its shares. The less demand from investors, the lower the share price. So, some penny stocks may appear to be cheap, but you need to ask yourself why.

Pros and cons of penny stocks

Here are some of the benefits and risks of investing in small-cap UK penny stocks:

Pros

  • Low prices. Because they’re low-priced, investors can hold a diversified portfolio of penny stock companies without needing to spend as much as they typically would.
  • Growth opportunity. Small cap, 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 their share prices change significantly in a short time, which can be exciting and thrilling for investors with a high risk tolerance.

Cons

  • High risk. Penny stocks are very high-risk investments compared with shares in other listed companies with a longer financial track record. Not all companies that list on an exchange do well, and a lot of penny stocks never become anything more than a penny stock.
  • Very volatile. Penny stocks often experience extreme share price highs and lows within a matter of days (or even within the same day), which may not suit more cautious investors.
  • No income. Penny stocks rarely pay any dividends, as all revenue is usually reinvested back into the company to help it grow.

Compare share trading platforms

Table: sorted by promoted deals first
Name Product Finder score Min. initial deposit Price per trade Frequent trader rate Platform fees Offer Link
Finder Award
OFFER
CMC Invest share dealing account
4.4
★★★★★
£0
£0
N/A
£0
Earn up to £1,000 when you transfer a minimum of £25,000 into your CMC account, plus get your first 3 months free when you upgrade to Plus plan. T&Cs apply. Capital at risk.

Capital at risk

Platform details
Finder Award
FREE TRADES
eToro Free Stocks
4.4
★★★★★
$100
£0 on stocks
N/A
£0

Capital at risk. Other fees apply.

Platform details
InvestEngine
4.3
★★★★★
£100
£0
N/A
0% - 0.25%
Get a Welcome Bonus of up to £50 when you invest at least £100 with InvestEngine. T&Cs apply.

Capital at risk

Platform details
XTB
4.3
★★★★★
£0
£0
£0
£0
Earn up to 4.9% interest on uninvested cash. Tiered interest rate structure applies depending on value of existing assets.

Capital at risk

Platform details
Halifax share dealing account
4.2
★★★★★
£20
£9.50
£2
£36 per year

Capital at risk

Platform details
Hargreaves Lansdown Fund and Share Account
4.2
★★★★★
£1
£11.95
£5.95
£0

Capital at risk

Platform details
loading

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

Bottom line

Penny stocks, with their low cost and high potential returns, can add a dash of excitement to your investment portfolio. They carry significant risk, though. The possibility of losing your entire investment isn’t just theoretical—it’s a very real risk. It’s essential that penny stocks don’t make up the majority of your portfolio. Diversification is key, and it’s crucial to only invest money you’re fully prepared to lose.

Do your homework. Investigate if these stocks are truly undervalued with strong potential for future growth or if they’re low priced for a reason. Look out for red flags such as limited transparency or sudden promotions. Be wary of “pump and dump” scams, where fraudulent actors manipulate stock prices.

Keep in mind that penny stocks are common in volatile sectors like biotech or mining. The allure of high potential doesn’t guarantee success, so scrutinise each company individually.

In comparison, the FTSE 100, comprising large established companies, can offer steadier price changes and regular dividend payouts of about 3.9% each year. The FTSE AIM 100, made up of smaller and often younger companies, can at times outshine the FTSE 100 in returns, but it can also underperform severely, such as during the massive sell-off of 2022, and pays smaller dividends of around 2%. So, choose wisely, and always do your research.

Frequently asked questions

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

More guides on Finder

  • How to buy iShares Core MSCI Japan IMI UCITS ETF USD Acc

    Ever wondered how to invest in SJPA ETF? Learn more about it now and find out where you can invest in it. Compare ETF brokers to start investing today.

  • How to buy SPDR FTSE UK All Share UCITS ETF Acc

    Ever wondered how to invest in FTAL ETF? Learn more about it now and find out where you can invest in it. Compare ETF brokers to start investing today.

  • How to buy Franklin FTSE United Kingdom ETF

    Ever wondered how to invest in FLGB ETF? Learn more about it now and find out where you can invest in it. Compare ETF brokers to start investing today.

  • How to buy HSBC FTSE 100 UCITS ETF

    Ever wondered how to invest in HUKX ETF? Learn more about it now and find out where you can invest in it. Compare ETF brokers to start investing today.

  • How to buy Flutter Entertainment shares

    Thinking about buying shares in Flutter Entertainment? We explain how to do it and compare a range of providers who will give you access to global markets.

  • How to buy Dettol shares | 4200p

    Sales of Reckitt Bencksier products like Dettol have risen due to coronavirus. Here’s how you can invest in Dettol, by buying Reckitt Benckiser shares.

  • How to buy AT&T shares

    Ever wondered how to buy shares in AT&T? We explain how and compare a range of providers that can give you access to many brands, including AT&T.

  • How to buy Wincanton shares

    Ever wondered how to buy shares in Wincanton? We explain how and compare a range of providers that can give you access to many brands, including Wincanton.

  • How to buy United Utilities Group shares

    Ever wondered how to buy shares in United Utilities? We explain how and compare a range of providers that can give you access to many brands, including United Utilities.

  • How to buy Relx shares

    Find out how to buy shares in RELX, see its share prices over the last three months and check out our must-do checklist if you’re looking to invest.

Go to site