Penny stocks might be a topic that you’ve heard a lot about from your friends or colleagues. People love to talk about penny stocks, but when it comes to investing in them, many are hesitant. That’s most likely because all anyone ever hears about is the possibility to strike it big or lose it all.
While there are investors who pour millions of dollars into penny stocks, it should never be your only investment. This is due to the high volatility of the assets and the potential lack of verifiable information in the prospectus.
Penny stocks should be treated as a purely speculative investment and therefore, should only be relied upon with ‘fun money’ as opposed to long-term money.
This article aims to inform users on the Moomoo platform how to trade penny stocks using the brokerage. It is not intended to provide investment advice on particular penny stocks or how one can evaluate a penny stock. For this information, we recommend you consult with a trusted advisor.
Let’s get started by diving into the brokerage platform Moomoo.
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Moomoo, a subsidiary of venture-backed Futu Holdings, is a platform that launched in 2018 and is based in Silicon Valley. This platform offers commission-free trading on stocks, ETFs, and options.
Moomoo enables its users, new or experienced, to access level 2 market data for free and has no minimum balance requirement. The platform comes with several technical tools for investors who love to run risk and reward scenarios and dive deep into their own portfolio performance.
While the initial view of Moomoo might be slightly overwhelming for newcomers, there are options to customize your user experience so you see what is more relevant to you.
The app has plenty of benefits to talk about. However, a common complaint is the lack of customer service available on the platform. Currently, customers must email the company directly to speak to a customer service representative.
While this can be frustrating, there are several articles and FAQs on the company’s website that its customers can consult if questions arise.
There is also a large community of 13 million users, and forums are quite popular on the site.
Another benefit of using Moomoo is the access to news articles and continuing education. Moomoo has financial literacy courses to bolster your understanding of the stock market as well as coverage of news articles that might be relevant to investors.
For a full review on the platform, check out our Moomoo Review!
A penny stock, as defined by the SEC, is any stock that is trading below $5. Although some companies whose stock is trading for less than $5 are listed on a major stock exchange such as the New York Stock Exchange (NYSE), most trade over-the-counter (OTC) through the OTC Bulletin Board.
While this encompasses most penny stocks, some are also traded through the privately owned OTC Markets group.
Pink sheets is another term you should be familiar with. Companies listed on pink sheets are those who have not filed financials with the SEC. These stocks are listed exclusively over-the-counter and not on any major exchange.
Chances are if you've been interested in penny stocks before, you've likely had to search for them using platforms different from your main investment vehicle.
This type of investment is considered risky for a variety of reasons. Many of these are anchored in the lack of reputation and information that is available to the public.
While stocks that trade on major exchanges are required to file financial information with the SEC, companies who list their stock on pink sheets are not. This means that the information they are proclaiming in their prospectus may or may not be true.
For this reason, many brokerages will not allow pink sheets or will make you sign a specific form recognizing the increased risk. Pink sheet stocks are considered highly speculative because they have not been vetted by any higher authority.
Companies that were once traded on major stock exchanges but are no longer available on the exchange are companies that have been delisted. This can happen for a variety of reasons. Perhaps the shareholders of the company decided to take the company private (think Dell Computers in 2013).
However, a company may also be delisted if it fails to live up to certain standards as set forth by the various exchanges. OTC stocks do not have these standards. So, if a company is delisted on the NYSE but is available for trade OTC, there is a good chance that it failed to meet certain criteria and you should think twice before investing.
Because these stocks are typically less well-known, they face the large uphill battle of liquidity. If there are not a lot of investors trading the stock, then it has lower liquidity.
With every transaction, there are two parties at play – the buyer and the seller. If there are no buyers who are interested in the stock, then the seller cannot sell.
As a result, the holder of the stock might need to wait a considerable amount of time or take a large loss on the investment in order to sell the shares. Lack of liquidity adds another layer of risk to investors who trade penny stocks.
Penny stocks, as defined by the traditional view (stocks that do not trade on a major exchange) are not available on Moomoo. However, this does not mean that the more modern view of a penny stock does not exist.
Moomoo only supports stocks that are traded on major exchanges such as the NYSE or Nasdaq. This means that in order to trade penny stocks on the platform, you must trade stocks listed for under $5 but are still on major exchanges.
OTC securities and pink sheet stocks, as explored above, are not available on Moomoo. That does not mean that they will never be available on the platform, but for the time being, it is not possible to trade in this fashion.
This simple fact alone should not discourage you from Moomoo. Several platforms choose not to allow this type of trading on their platform because of the enhanced risk that is posed to investors.
While Moomoo may not have this specific investment opportunity, there are plenty of advantages to trading on the Moomoo platform.
If you are interested in trading penny stocks on Moomoo, (i.e. stocks that trade for under $5) there are plenty of tools at your disposal.
For example, the investment community of over 13 million users can help you research your ideas and provide you with new ones. In addition, Moomoo has over 22 drawing tools that help users explore trends and potential opportunities within their own portfolio as well as other stocks on the market.
Capital flows and technical indicators make Moomoo a viable option for those looking to get into the details of the stocks they are investing in. While there are no pink sheets or OTC stocks available on the platform, Moomoo will still provide a great experience for all types of investors.
Its relatively short track record and the lack of pink sheets on the app may make this platform unsuitable for some. However, there are many benefits to trading on Moomoo as outlined above. The lack of commissions and the large community of 13 million members might be a good enough reason to join for many investors.
However, if you had your heart set on investing in OTC stocks, then you should consider checking out some other platforms that do offer this kind of trading. Here are a few to consider: Firstrade, TradeStation, Charles Schwab.
Traditional penny stocks are available on all of the above platforms and by using our link to sign up, you might be able to win some free stocks!
Remember that the decision to trade penny stocks should be made after deliberate research. Be sure to have safeguards in place so that if you do decide to jump in, you'll be in a good position should the stock not perform.