Last Updated: January 11, 2023
Penny stocks are associated with high risk and volatility but also with exceptional return potential. Traders of all experience levels get lured by the idea of buying stocks priced under $5 and pocketing astronomical gains after a surge in value. The odds of such an outcome are hard to calculate. Yet, choosing the right platform to host your trades is an essential part of the equation.
If you’re looking to invest in penny stocks, you may be considering using Robinhood. This trading platform’s intuitive interface, simplicity, and commission-free services attract novice and seasoned investors alike.
In this blog post, we’ll discuss how to find penny stocks on Robinhood and what benefits and limitations the platform has. We’ll also elaborate on the risks associated with investing in low-cost shares. So start your research journey here and work your way up to optimize your penny stock trading experience!
Can You Buy Penny Stocks on Robinhood?
Yes, you can buy penny stocks on Robinhood. In fact, you can choose from hundreds of individual shares priced from $0.10 to $5. Moreover, you can buy fractional shares or invest in penny stock mutual funds and ETFs.
Let’s see how!
How to Find Penny Stocks on Robinhood: Step by Step Guide
Here are a few tips for finding penny stocks on Robinhood:
Use the search bar
The easiest way to find penny stocks on Robinhood is to use the search bar. Simply type in the ticker symbol or company name, and Robinhood will show you all of the available shares.
Naturally, this search option is only viable if you’re looking for a particular company. To browse the penny stock market, you will have to use some of Robinhood’s advanced search features.
Filter by price
Another easy way to find penny stocks is to filter by price. Under the Filters tab on the right side of your screen, you can set the maximum stock price at $5. Further narrow your search by filtering the results by sector, company size, and other factors. The list can even be organized by price, movement, popularity, market cap, and more parameters.
Remember that the filter system is only available on Robinhood’s desktop version. The mobile app is handy for keeping track of your investments and executing orders on the go, but when exploring your penny stock possibilities, you would want to use the platform’s full capacity.
How to Buy Penny Stocks on Robinhood
Buying penny stocks on Robinhood is no different from making an ordinary stock purchase. There are just a few simple steps to follow:
Fund your account.
Link your bank account to your Robinhood account. You can transfer up to $50,000 a business day but access up to $1,000 instantly.
Pro tip: Since deposits can take up to five business days to complete, it’s wise to fund your Robinhood account in advance, especially if you are planning a larger purchase.
Click on the selected penny stock.
Once you’ve made up your mind, click on the selected stock, and you will be taken to the stock page. There, you will find some basic info about the company and the stock’s price chart.
Pro tip: Don’t invest in penny stocks without doing your homework first. Read up on the company and its management, and make sure you understand the risks involved.
Enter the amount you want to purchase.
You can enter the actual dollar amount you want to invest in the stock or select the number of shares. A drop-down menu on the top right will let you switch between the two options.
Pro tip: Remember that penny stocks are high-risk investments, and you could lose your entire investment. Don’t invest more money than you can afford to lose.
Select order type.
Choose the type of order you want to place on your purchase. The options include market, limit, stop loss, and stop-limit order.
Pro tip: When buying penny stocks, it’s important to use limit orders. This will help you control the risk and avoid overpaying for shares.
Review your order.
Check out every detail in your order to confirm it’s correct. If you spot an error, tap the Edit button on the top-left corner and make the necessary changes.
Pro tip: Don’t skip this step. Robinhood would not take responsibility for any order mistakes from your side.
Submit your order.
Once you make sure your order is right, confirm your purchase. On mobile, you can do so by swiping up, while on the desktop platform, you simply click on the Buy button.
Penny Stocks Trading on Robinhood: Limitations and Benefits
While Robinhood allows users to choose from hundreds of penny stocks to invest in, the platform’s offering is actually limited to companies listed on the NASDAQ and the New York Stock Exchange (NYSE). This is a drawback for some investors since most penny stocks trade over-the-counter (OTC). However, the stricter listing requirements of these major exchanges mean the penny stocks available on Robinhood are less risky than those on the OTC markets.
Some may also argue that Robinhood lacks some crucial information and additional resources to aid users in their investment choices. This, coupled with the platform’s easy-to-use interface, could be somehow tricky for less experienced investors. Thus, we recommend doing thorough research and venturing out to other platforms and websites for detailed information and stock analysis.
Can you day trade penny stocks on Robinhood?
Yes, you can day trade penny stocks on Robinhood but not without limitations. The Pattern Day Trading (PDT) rule, set by FINRA and governed by the Securities and Exchange Commission (SEC), applies to all US brokerages. It prevents traders with less than $25,000 in their account from making more than three intraday trades within five trading days.
This rule may frustrate some traders but is designed to limit the risks involved in day trading.
Speaking of risks…
The Risks of Investing in Penny Stocks
There are a number of risks associated with investing in penny stocks. Here are a few of the most important ones:
- Risk of fraud
There is a risk of fraud when investing in penny stocks. Be sure to do your research before investing and only deal with reputable companies.
- Risk of losing money
As we mentioned earlier, penny stocks are high-risk investments. You could lose your entire investment if the stock price plummets.
- Lack of liquidity
Penny stocks tend to be less liquid than other types of stocks. This means that it can be harder to sell them when you need to.
- Limited information
It can be difficult to get reliable information about penny stocks. Analysts rarely follow such small-sized companies. This makes it hard to make informed decisions about whether or not to invest in them.
The Bottom Line
Penny stocks can be a great way to invest in small businesses and startups. However, they are also high risk and may not be suitable for everyone.
Now that you know how to find penny stocks on Robinhood, you can explore the platform’s offering. Since it allows access only to highly-regulated exchange-traded stocks and applies the PDT rule, you may be safer placing your orders through this platform.
However, there is still a lot to consider to avoid costly mistakes and increase the odds of making a successful penny stock investment. Complete your research before committing your hard-earned money to such a risky endeavor.
You can use the search bar on Robinhood to find a specific company. Alternatively, you can browse the stocks, filtering out the shares priced above $5.
Yes, you can short sell penny stocks on Robinhood. However, keep in mind that this is a more risky strategy than simply buying and holding shares. So be sure to understand the risks before using it.
That depends on your individual situation and how comfortable you are with the risks involved. Penny stocks can be a great way to invest in small businesses and startups, but they are also high risk and may not be suitable for everyone. So be sure to do your research before investing in penny stocks.
There are a number of good penny stocks on Robinhood that may be worth considering. To find some of the top performers or most promising ones, you can use the platform’s advanced search option to organize the stocks by popularity, price movement, or analyst rating.
Yes, you can use margin trading for penny stocks on Robinhood. However, keep in mind that this is a more risky strategy than using your own funds.