When it comes to investing in the stock market, one of the first decisions to make is what brokerage to invest with.
As you are making this decision, it is important to consider what types of investments you are looking to make. For example, Robinhood is a commission free trading app that allows you to trade thousands of stocks and ETFs commission free.
Specifically, today we will be looking at what types of penny stocks are available on Robinhood. This is considered to be a high risk, highly speculative investment.
- Generally speaking, a penny stock is any stock that trades below $5 per share
- Robinhood offers hundreds of different penny stocks on its brokerage platform
- Robinhood equips its users with the proper tools to manage risk and trade penny stocks in a smart way
- Penny stocks inherently come with risk, so it is always important to develop a plan no matter what brokerage platform you are using
- Robinhood offers search capabilities on its website to sort through different penny stock options and find the right one for you
- While Robinhood does offer hundreds of different penny stock options on its platform, it does not cover every penny stock on the open market
- You can only trade stocks on the major exchanges (NYSE/NASDAQ)
- Most penny stocks trade on the OTC exchanges or "pink sheets"
What Is A Penny Stock?
Before jumping into penny stocks on Robinhood, it is important to understand what exactly a penny stock is! Penny stocks are defined as companies listed on the open market whose shares are priced at $5 and below. These companies are typically micro-cap, meaning their market capitalization is at a low number relative to larger peers.
A stock priced below $5? That stock is cheap! Hold on there, while a penny stock may be considered cheap in valuation standards, just because a company is priced at a low dollar value does not make it cheap. In fact, a lower dollar value may increase the risks of investing. At the same time, rewards can be amplified as well.
Penny Stock Risks
Because penny stocks typically have lower market capitalization, they are less liquid, meaning that there are fewer buyers and sellers in the market for that company.
This makes them easy to manipulate and higher risk trades. Penny stocks often attract new investors who may jump on the bandwagon of a “pumped up” penny stock that has been artificially manipulated.
Make sure you are properly educated on the company, what news is moving it, and if the move is warranted! To learn more on penny stocks, you can click here. If done correctly, there is plenty of money to be made trading penny stocks as well!
Penny Stock Rewards
It is possible to make a pretty penny trading penny stocks!
This is due to the illiquidity in the market, as mentioned previously, contributing to large intraday swings. Traders can take advantage of these large swings if they manage risk properly and find great entry points. Entry points can be found by analyzing support and resistance lines.
You can learn more about support and resistance here when trading.
Robinhood Penny Stock Features
Now let's talk about Robinhood specifically.
I am sure that you have heard about Robinhood in the news recently as many retail traders have flocked to the platform due to its zero commission incentives. The broker offers different stocks, ETFs, and options on its platform.
But the main question you are probably wondering is, does Robinhood offer penny stocks?
Does Robinhood Offer Penny Stocks?
In short, yes! Robinhood offers hundreds of different penny stocks through its brokerage platform that you can invest in now. With penny stock options in every sector, Robinhood is aiming to provide abundant penny stock opportunities to its users.
What Penny Stocks Does Robinhood Offer?
As previously mentioned, Robinhood offers many different penny stocks, with prices ranging from a few pennies to $5!
According to an article on Market Watch published on 4/17/20, the top rated penny stocks offered by Robinhood were Aphria Inc, Plug Power, and Catalyst Pharmaceuticals. Now, I am in no way aiming to provide a recommendation by listing these companies!
Instead, I am drawing attention to the different types of penny stocks Robinhood offers.
Executing A Penny Stock Trade on Robinhood
Executing a penny stock trade on Robinhood is no different than any other trade you make on the platform.
Simply search for a company, find a penny stock that you are interested in, select it, and trade it! It is that easy.
No wonder why Robinhood is known for its simplicity and navigational ease, two very attractive components of the company and its service.
How To Find Penny Stocks On Robinhood
The only way to search for penny stocks through Robinhood is on the company website.
- Log into your account and navigate to the “Popular Collections” tab on the top of the screen.
- From there, select “Show More.” Here, you will be shown the different market sectors.
- Click on the sector you are interested in and select “see all stocks.”
- All there is left to do now is to set the price cap limit to $5 and let the search begin.
You will see dozens of companies. Make sure you do your homework and research before jumping into the first that catches your eye! Remember the precautions I mentioned previously. Penny stocks come with risks. Successful traders are the ones who do their research, make a plan, manage their risk, and book their profits.
Managing Risk On Robinhood When Trading Penny Stocks
The most important part of trading penny stocks is making sure you properly manage risk.
Robinhood has the proper tools to make this happen. The main way most traders properly manage risk is by setting a stop loss. Stop losses are a certain type of market sell order that will automatically sell all of your shares at a predetermined price.
Stop-loss orders can be very handy when trading penny stocks because risk can be defined. I will give an example below.
Robinhood Penny Stock Trading Example
Say, for instance, I find a penny stock I like.
Next, I do thorough research and see if it is a great deal at $3 per share. If I think the stock can even go to $4 per share after reading analyst reports and finding a fair value for the company, I decide to buy 100 shares of that stock with a total investment of $300. To properly manage risk, I set a stop loss at $2.75. My risk/reward ratio is now defined.
If the stock goes to $4, I make $100, but if it drops $0.25 I lose $25. Analyzing risk is very important when trading stocks, and is easier said than done. If you are planning on trading penny stocks, make sure you set a plan like this one. Always manage risk and you will have a lot more confidence when trading penny stocks!
Which Exchanges Offer Penny Stocks For Robinhood?
There are two main stock exchanges in the US, and Robinhood offers access to both. The New York Stock Exchange (NYSE) and the NASDAQ.
Luckily for Robinhood users, both of these exchanges offer penny stocks on Robinhood as well. You cannot trade stocks on OTC markets with Robinhood.
Why Use Robinhood To Buy Penny Stocks?
The main reason why Robinhood is a great option for trading penny stocks its zero commission policies on all stocks.
Because penny stocks are so cheap, you can invest in them with almost any sum of money. All you need is $5! While many brokerage companies would charge commissions to execute a buy and sell of a penny stock, Robinhood does not. They make money in other ways.
This makes it a great option as commissions will not eat into trading margins.
Robinhood Penny Stock Pros
- Zero commissions on all penny stocks allow investors to keep trading costs low when investing with any sum of money
- Hundreds of different penny stocks offered through Robinhood’s brokerage platform, covering all of the main industries and market sectors
- Ability to search for penny stocks on Robinhood’s company website, making it easy to find the right penny stock that is also in the right price range you're looking for
- Robinhood offers various order types to equip its users with the proper risk management tools, an essential factor when investing in penny stocks
- Penny stocks offered from NYSE and NASDAQ on Robinhood
Robinhood Penny Stock Cons
- Penny stocks inherently come with several risk factors that have been noted above
- While Robinhood does offer hundreds of different penny stocks to its users, it does not cover every single penny stock that is listed on the open market
- Robinhood does not offer market research on all penny stocks that it offers. You will have to seek alternative resources to perform research
- No tactical trading platform offered, making it hard to trade with technical analytics, a method that is crucial to consider when trading penny stocks
Robinhood Penny Stocks: The Final Verdict
To sum it all up, Robinhood does offer fantastic penny stock trading capabilities on its brokerage platform.
With hundreds of different penny stocks to choose from spanning diverse industries and market sectors, Robinhood will have a penny stock choice for all of your investment interests. It also is equipped with the proper order tools to let you be smart and properly manage risk when trading penny stocks.
Always remember that even if you do choose to use Robinhood as your brokerage platform of choice for trading penny stocks, it is important to do your research on every company you decide to buy. Just because it is listed on Robinhood and looks cheap does not mean it is automatically a buying opportunity!
At the end of the day, when exploring different online brokers it all boils down to you, the investor, on what platform may be your best choice. Remember to consider your goals, passions, and companies that you are interested in to help you choose the right online brokerage platform for you. Because there are similar platforms like Robinhood, the only thing that I can advise is for you to do your research and find the one that personally suits you best!