You may well have heard of the old English tales of Robin Hood, the man who wore green, carried a bow, and combatted perceived injustices with his band of merry men.
If you asked most people, “Who is YOUR Robin Hood?”, they might respond with Kevin Costner or even the classic swordsman Errol Flynn.
For others, they might respond with, “Do you mean my trading account?”
This article will delve into the world of penny stocks. What are they? Can I trade them? Will they make me rich?
We will explain how you can find and buy penny stocks using both the Robinhood app and via your Robinhood account in the browser window.
What Is Robinhood?
Robinhood is an American financial services company based in California.
The company is an industry leader in its field, and they are well known for pioneering commission-free trading.
Users of Robinhood can invest in stocks, exchange-traded funds (ETF), options, and cryptocurrency.
They caused a huge wave of interest in trading after they released their cell phone trading app in 2015, and the booming cryptocurrency market has certainly added to that.
More people are looking at alternative sources of income, and there has been a huge rise in the number of regular Joe’s who wish to start trading.
For many years, the stock market was the plaything of the rich, powerful, and privileged.
Whilst this undoubtedly remains the case to a worrying extent, the rise in technology and ease of access to trading has opened up a new world of investment opportunities.
What Is A Penny Stock?
Penny stocks are shares of smaller companies that trade at less than $5 per share, with some costing only a few cents, hence the name ‘penny stocks.
These stocks are often those of small, low-value companies.
This means it is easier to buy the stock and become a trader, but these shares most likely won’t perform like more popular stock options.
These shares don’t always trade on the major stock exchanges, instead, they are listed on Over-the-Counter Markets.
Over-the-Counter trades are those of shares not listed on an exchange and can consist of any security including equities, commodities, and derivatives
What Is The Minimum Investment For Penny Stocks?
This varies depending on the broker that the investor uses, as each broker will have to abide by both industry standards and their own personal preferences.
Some may allow you to start investing with as little as $1,000 in Assets Under Management (AUM), whereas others might require a minimum of $50,000 in AUM.
Does Robinhood Have A Minimum Investment Requirement?
One of the reasons Robinhood’s popularity and customer base has expanded so exponentially is that customers can open an account with $0.
Fractional shares offer an opportunity to invest with as little as $1 in certain stocks and exchange-traded funds.
The company divides the single shares into fractions, which allows smaller traders to invest in previously untouchable stock options.
This is also a strategy for companies or funds to obtain investment from a much wider range of individuals, whilst also allowing them to quickly obtain funds when capital is needed.
Can You Buy Penny Stocks On Robinhood?
Good news for you new investors and engaged day traders, it is indeed possible to buy penny stocks on Robinhood.
However, as previously mentioned, most penny stocks are traded on Over-the-Counter Markets instead of on the main stock exchanges.
So what’s the problem?
Robinhood’s users are unable to access Over-the-Counter Market trading via their accounts or applications.
Instead, they are limited to trading exchange-listed funds on major exchanges such as Nasdaq or the New York Stock Exchange.
Unfortunately, this means that there is not as wide a selection of penny stocks available to Robinhood users as there would be for general traders.
Exchange-listed penny stocks available may be fewer than the number available via OTC trading, however they are also seen as a safer investment.
For a stock to be listed on an exchange, it must meet the legal and financial requirements.
These of course can vary quite a lot between exchanges, but the industry standards usually include minimum share prices, minimum shareholder accounts and minimum stockholder equity amounts.
Finding Penny Stocks On Robinhood
1. Using your internet browser, navigate to https://robinhood.com/us/en/ and log in to your account.
2. Go to Popular collections and select show more.
3. Next, choose the category or sector that you wish to investigate and click See All Stocks.
4. Look to the right of your screen for the price cap button, and then set the maximum stock value at $5. This will then only show the penny stock options available to invest in.
5. Use the built-in filters to refine your search by price, market cap, movement, popularity, and the all-important analyst ratings.
When using the Robinhood app, you can follow the above steps in an easier to use format.
Use the built-in filters to inspect the potential investments you wish to make.
Buying Penny Stocks On Robinhood
After following the above guide to locating the penny stocks, if you find some that appeal to you, it’s time to invest and buy up some stock!
1. Decide which stock you wish to buy and select that stock’s information in the app.
2. Next, you can move to the bottom of the stocks page and click the Buy button.
If you already have some of this stock owned, you will also be given the option to select the Trade button.
3. Decide how much stock you want to buy. You can choose one of two ways to buy this stock.
Either as a monetary value in dollars or by selecting the number of shares you wish to buy.
4. Review your order and check the details of your intended purchase.
You can select the dollar value, number of shares and also decide the type of order you wish to make.
What kind of order can you make?
- Market Order – This is executed at the current market price
- Limit Order – This can only execute at the specifically set price limit or higher
- Stop Order – This is set up to buy a stock when it reaches a specific price
5. Make a final check that all the details of your order are correct.
If you need to make any changes then select the Edit button which can be found in the top left corner.
6. Confirm your order and submit the transaction via swiping up on the app or by clicking on Buy on a web browser.
Penny stock trading can be a fun way to start dabbling in trading stocks and learning more about the financial investment market.
This is also a good way to get to grips with the Robinhood user interface if you’re planning on diversifying your investments in the coming weeks, months, and years.
Although these stocks may not yield fantastic returns, an investor with a proper strategy and a firm grip on world events may find the opportunity to grow their investment portfolio significantly.