Australia’s penny stocks

Australian penny stocks can be a high risk, high reward investment that are suited to experienced day traders.

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More commonly used overseas, but have you heard of Australian penny stocks? If not this your how to guide as to what are penny stocks and why you should consider trading them?

Investors are often attracted to penny stocks for their cheap prices and potential growth opportunities, though there are risks involved with penny stocks, too.

What are penny stocks?

Penny stocks is a loose name for cheap, low-priced shares of small, often newly listed companies. There are a few different ways to define Australia's penny stocks.

Here are some of the characteristics of penny stocks.

Note businesses don't necessarily need to include all of these to be counted as a penny stock:

    • Small company
    • Market cap below $50 million
    • Newer company recently listed
    • Share price below $5
    • Limited financial track record
    • Doesn't pay dividends

List of ASX penny stocks

Source: These are the 20 stocks in the iShares S&P/ASX Small Ordinaries ETF with the smallest market caps. This list includes some examples of Australian penny stocks and is not an exhaustive list, nor is it a recommendation for any of the stocks mentioned.

Pros and cons

Here are some of the benefits and risks of investing in small-cap Australian penny stocks:

Pros

  • Low prices. Because they're low priced, investors can hold a diversified portfolio of penny stock companies without needing to spend as much as they typically would.
  • Growth opportunity. Small-cap, newly listed companies can often present great growth opportunities if you pick the right ones. However it could be a bumpy ride to the top.
  • Thrilling. Penny stocks often see their share prices change significantly in little time, which can be exciting and thrilling for investors with a high risk tolerance.
  • Day trading. Because of their large price swings, penny stocks are often used by active day traders.

Cons

  • High risk. Penny stocks are very high-risk investments compared to other listed companies and ETFs with a longer financial track record. Not all companies that list on an exchange do well and a lot of penny stocks never become anything more than a penny stock.
  • Very volatile. Penny stocks often experience extreme share price highs and lows within a matter of days (or even within the same day).
  • No income. Penny stocks rarely pay any dividends, as all revenue is usually reinvested back into the company to help it grow.

Penny stocks versus blue chip stocks

On the opposite side of the scale to Australian penny stocks are blue chip stocks. In comparison to penny stocks, blue chip stocks are large listed companies that have been around for a long time and have a long, stable financial track record. Some of Australia's biggest and most well-known companies are considered blue chip stocks, such as the Big Four banks, Telstra, Woolworths and BHP.

While penny stocks in most cases pay no dividends, blue chips stocks almost always do.

The downside of buying blue chip stocks are they traditionally have a slower growth rate compared with smaller stocks.

So investors are chasing larger capital growth, they traditionally do not look at blue chip stocks.

Should you invest in penny stocks?

You could consider investing in Australian penny stocks if:

  • You have a high risk tolerance
  • You're an experienced investor
  • You're willing to cut your losses if the share price falls significantly
  • You have a long investment time frame and are willing to ride out the volatility
  • You're happy to take a bit of a "gamble"

Are penny stocks good for beginners?

Australian penny stocks can actually be a good way for investors to ease into the market.

Like with everything else in life you get what you pay for. So investors who choose to put their money in mature blue chip stocks can do so, but it will cost them more for the privilege.

On the other side is penny stocks, which as the name suggests are significantly cheaper per share.

Although there is a downside. These companies are far more risky compared with the more established players.

Ask an expert: How do you pick the right stocks?

Jessica Amir

Jessica Amir
Market analyst, Bell Direct

Investing can be simple if you keep in mind that a business’ value is often estimated by its future earnings. For example, in the week the NSW/VIC border reopened, travel stocks rallied as investors betted that company earnings in the sector would lift. So, when picking a stock consider;

  1. Is the company in a growth area?
  2. Does it have a solid history of company growth and is the company likely to be around in 10-15 years?
  3. And is it growing or likely to grow its revenue (and or cashflow)? Remember, earnings growth drives share price growth.

Tips for investors

If you're keen to invest in Australian penny stocks, here are some tips to help you get started.

Do your research

This is important for all investments, but particularly higher-risk investments like penny stocks. Blue chip stocks are, by their nature, lower-risk options as they've got a long history of strong financial performance.

Plan a strategy and stick to it

Before you start buying, decide which penny stocks you're going to invest in and how much you're going to invest in each one.

It's also important to decide what price you'd sell at if the shares were to fall and stick to it to avoid the "I'll just hold a little longer and see if the price jumps back up" mentality. The same applies for gains.

Don't make emotional decisions

It can be easy to get emotionally attached to an Australian penny stock, as they're often the underdogs in your portfolio.

So when their share price falls and falls some more, you can find yourself making excuses as to why you should keep holding. This is why it's important to make a strategy, so you leave the emotions out of it.

Cheap doesn't always mean value for money

Penny stocks may appear to be cheap in comparison to other shares listed on the ASX, but don't base your investment decision purely on this.

One factor that influences a company's share price is the demand for its shares. The less demand from investors, the lower the share price. So some penny stocks may appear to be cheap, but you need to ask yourself why this is.

How to buy penny stocks in Australia

  1. Choose a share trading platform. If you're a beginner, our table below can help you choose.
  2. Open your account. You'll need your ID, bank details and tax file number (TFN).
  3. Confirm your payment details. You'll need to fund your account with a bank transfer, debit card or credit card.
  4. Find the shares you want to buy. Search the platform and buy your shares. It's that simple.

Compare share trading platforms to buy penny stocks

Name Product Standard brokerage fee Inactivity fee Markets International
eToro (global stocks)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Superhero share trading
$5
No
ASX shares, US shares
Yes
Earn up to 15,000 Qantas frequent flyer points when you transfer an exisiting balance or trade. Offer valid for all new and existing Superhero members until 28 February.
Pay zero brokerage on US stocks and all ETFs and just $5 (flat fee) to trade Australian shares from your mobile or desktop.
ThinkMarkets Share Trading
$8
No
ASX shares
No
Limited-time offer: Get 10 free ASX trades ($0 brokerage) when you open a share trading account with ThinkMarkets before 31 December 2021(T&Cs apply). $8 flat fee brokerage for CHESS Sponsored ASX stocks (HIN ownership), plus free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until 31 Dec 2021, when you join Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
Saxo Capital Markets (Classic account)
$5
No
ASX shares, Global shares, ETFs
Yes
Access 19,000+ stocks on 40+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
HSBC Online Share Trading
$19.95
No
ASX shares, mFunds, ETFs, Bonds
No
Limited-time offer: Join HSBC’s online trading account before 28 February 2022 and HSBC will reimburse you up to $100 on your first 5 trades. Also traders who transfer $50k+ will get a $200 bonus(T&Cs apply).
Make trades online with brokerage fees starting from just $19.95 with an HSBC Online Share Trading account. Plus gain access to complimentary expert research, trading ideas and tools.
CMC Markets Invest
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
SelfWealth (Basic account)
$9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Penny shares frequently asked questions

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