How to Buy Penny Stocks on Robinhood: What are Penny Stocks? Can they be bought on Robinhood, and the Factors to Consider before Buying Penny Stocks
Investment is a great way of holding down your money and at the same time gaining ample rewards on them. Though it comes with certain risks, usually, once great research is done and you stick with the rule of investment, you tend to earn good rewards or at least not lose your money. Buying stocks and gaining rewards on them is one type of investments people delve into these days. These stocks are bought on various exchange platforms and one of these platforms is Robinhood. Have you heard about Robinhood before? Do you know how to buy stocks on this platform? In this article, we shall be talking about Robinhood and how to buy Penny Stock on Robinhood.
1. What is Robinhood?
Robinhood Markets Inc. is a financial services company that offers an online discount brokerage involving commission-free trading. Users have access to their services through a mobile app that lets them invest in stocks and trade them, they can also invest in and trade many other assets like the exchange-traded funds, the American depositary receipts, and others. The company also feature services that allow their customers to trade and invest in various cryptocurrencies. Depending on where they live. Robinhood gets their income from the various charges they change on the use of their services, but so far, they are one of the best platforms for beginners s their charges are very affordable. Their platform is very easy to use and they have quite a large number of stocks listed on their platform. Robinhood has so far gained the trust of so many investors and they are one of the top on the list of exchange platforms. The deposit methods available on the platform include Debit Card, Bank transfers, and Cash. There are 17 cryptocurrencies available on the site and the only fiat currency allowed is USD.
2. What are Penny Stocks?
A Penny Stock is simply a stock of a small company that you can buy for any amount lesser than $5 per share. Penny stocks are mostly traded through over-the-counter (OTC) transactions while very few are traded on few brokerage platforms like Robinhood. Penny stocks are highly speculative because they usually lack buyers that are ready to buy in the market- this also means that they lack liquidity. This causes so many investors to find it quite difficult to sell their penny stock as they might not find a ready buyer at the time they are ready to sell. This also makes it difficult for investors to find a price that correctly reflects the market for it.
2.1 Can Penny Stocks be bought on Robinhood?
Only a few brokerage platforms allow you access to a penny stock, and Robinhood is part of these few platforms. The selection is however limited because most of the penny stocks are not on major exchanges like Nasdaq and the others. Another reason for it being limited is the fact that penny stocks are not searchable on the search button. This makes it a bit difficult to buy them. Most Penny Stocks are listed on Over-the-counter Markets and Robinhood does not feature access to over-the-counter penny stocks.
2.2 How Do I Find the Best Penny Stocks on Robinhood?
Finding the best penny stocks on Robinhood might not be as easy as buying some other stocks because penny stocks do not appear on the search box on Robinhood- you cannot search for it. To get the best penny stocks, you need to first login to Robinhood on a computer using any web browser of your choice- please note that you cannot search for penny stocks on a mobile phone or their mobile App. After you have logged in, move to the “Popular Collections” section and then select the “Show More” option. Once you select the Show more option, various categories of stocks would be displayed and so go ahead to choose the particular category you are interested in. After this, set the maximum stock price to $5 by dragging the price cap button on the right side of your screen. Once you do this, you would be able to see the various penny stocks available on Robinhood and then use the filter button to sort them out according to their prices, market cap, ratings, and so on, as much as you like.
3. How to Buy Penny Stocks on Robinhood
After you have checked through the various options of penny stocks available on Robinhood and you have made your decision on which particular one to buy, the next thing to do is to go ahead to buy it. The steps involved in buying penny stocks on Robinhood is quite simple. To buy it, the first thing you want to make sure of is that there is a fund in your account. To fund your account, simply link an external bank account of yours to your Robinhood account and make sure you make a transfer of up to $50,000 a working day. This gives you instant access to up to $1000. Also, It is advised that you transfer your funds before making any purchase on Robinhood. After you have funded your account, go back to choose the penny stock you have decided to buy. Also indicate the kind of order you want it to be either market order or limit order. A market order allows your purchased stock to be initiated immediately while limit order delays sending your purchased stock till the market reaches a price that you desire. The next thing to do is to type in the number of shares that you wish to purchase while making sure that you cross-check well for errors. After you have done all of these, check out every entry you have entered from the beginning to the end of the page to be sure that you have not entered any part wrongly. Lastly, click on the “Buy” button to finish up the buying process. All you have to do next is just sit back and watch how your stock performs in the market.
4. Can Penny Stocks be Traded on Robinhood?
Penny Stocks can be traded on Robinhood, it is just that Gold account holders and Robinhood Instant holders are only allowed to carry out up to three days trades within a five day trading period. What is meant by a day trade is an asset that is bought and then also sold within a single trading day- although day trading carries many risks, and needs you to be very smart to avoid sudden losses. Although, even with being smart and all, several day traders still fall into huge losses and there is nothing Robinhood offers to help with that. While some other trading platforms have advanced charting and analysis tools to help protect from such losses, Robinhood does not. So you have to be very smart with your decisions as there is a high chance of huge losses without those advanced charts and analysis tools.
5. Tips on Factors to Consider before Buying Penny Stocks on Robinhood
The fact that Robinhood does not allow you to have access to over-the-counter shares implies that there are so many risk factors you should carefully consider before going ahead to buy your penny stocks. Here are a few of them:
5.1 Information Regarding The Stock Might be Difficult to Fully Access
This is simply due to the fact these stocks are sold by small companies that usually havea quite limited financial history. This will make it very difficult for you to research and verify if the stock is trustworthy or not- This means you are taking a high risk.
5.2 They are Usually Difficult to Buy
Because Penny Stocks are sold are traded at a volume that is quite lower than most other stocks out there, you are likely going to find it difficult to either sell or buy your penny stocks.
5.3 The Price is Unpredictable
This is another great risk you should consider. Most Penny stocks are volatile and they easily go through non-constant price changes even within one single day. This can make it difficult to buy these stocks.
5.4 They Come with No Dividends
You might want to consider not delving into Penny stocks if you are an income investor because these stocks offer no dividends at all.
These and many other factors should be considered when deciding on whether to buy Penny stock or not, you can go ahead once you see that your benefit outweigh your risk.
Robinhood is one of those very few platforms that you can get your penny stocks from and even at that, they do not offer access to over-the-counter stocks and so it is limited. You can buy the available penny stocks on Robinhood by following the steps discussed above after you have weighed the risks involved in buying them. You can also search for the available penny stock on Robinhood through the discussed method. Robinhood is a trusted platform and it is one of the leading brokerage platforms.