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Trading on penny stocks in the UK

A large number of well-established companies were once trading for under £1 a share, including Ford, JD Sports and Monster Beverage. Those who invested in these companies during their penny stock trading days could have made a substantial gain over time.

Read ahead for some key things you need to know about trading penny stocks in the UK, including how-to identify good penny share opportunities. We also provide a list of UK penny stocks to watch in 2022 that may be considered a bargain to add to your portfolio. Open an account to get started.

What are penny stocks?

Penny stocks or penny shares are a common stock that trade for less than £1 on UK stock exchanges or less than $5 on US stock exchanges. The low share price means the stock is likely to be a highly speculative investment.

Although the definition of a penny stock is a stock that is valued under £1 or $5 in the UK and US respectively, they have been expanded to cover stocks valued over these guideline prices. But generally, penny stocks have low share prices. They are usually characterised by very high volatility and are seen as higher-risk stocks, with the possibility of growth, so be sure to do due diligence on each stock before engaging in penny stock trading. They also tend to have a market capitalisation of below £100m in the UK, or below $300m in the US. In the UK, penny shares tend to be listed on the FTSE AIM (Alternative Investment Market) index.

The appeal of trading penny stocks and penny shares in the UK is easy to see. If you have £1,000 to invest, you can get a considerably larger share percentage in a smaller company whose shares are trading for a few pence, rather than buying blue-chip shares that may cost much more for an extremely small percentage of ownership. And of course, if your penny share one day goes on to join the blue-chips, you could end up making large returns with the right trading strategy.

How to trade on penny stocks in the UK

If you're on desktop, open a live trading account to spread bet or trade CFDs on the price movements of penny stocks. You can add funds to your account via bank card, bank transfer or PayPal. If you want to practise first with £10,000 of virtual funds, then open a demo account.

Alternatively, if you're on mobile, download our iOS or Android app* and sign up to get started.

  1. Research to find the right stocks for you. Use our news and insight tools and review our news and analysis section to inform your trading efforts.
  2. Decide if you want to buy or sell. Determine your entry and exit points based on your trading strategy. Go long and ‘buy’ if you think the instrument price will rise, or go short and ‘sell’ if you think the price will fall.
  3. Manage your risk. Before placing your trade, make sure you have followed risk-management guidelines as part of your strategy.
  4. Determine your position size and place the trade. Apply any risk-management orders, such as stop-losses and take-profits, and confirm your trade.
  5. Monitor your position and close your trade. If making a profit on their penny stock position, some traders may wish to stick to their trading plan and close out when the target price is reached.

Penny share market analysis

Penny stock markets are well known for being extremely volatile, and price fluctuations of around 20% are very common. Therefore, it is essential to conduct a thorough analysis while following your risk-management strategy before deciding whether or not to go forward with any trading decision. It is also best practice to trade in industries where there is large market growth as opposed to industries that are declining.

Penny stocks in the UK and internationally tend to not see much daily trading volume on the stock markets, therefore it often doesn't take a large buy or sell order to move the price. If plenty of people are talking about a penny share, on internet forums for example, that could also influence the price. It is important not to get sucked into an investment just because it has had a large one-day move and you’re afraid of missing out. What goes up quickly can come down even quicker – so make sure your reasons for investing are the right ones.

When should you enter and exit a position?

If you’re happy with your research and have made your trade, you may want to sell. For example, let's say you are fortunate and the value of the penny stock moves in your favour and, for the sake of argument, it doubles. It can be very easy to sit back and wait for it to double once more. This is not always going to happen, and you should have a strategy in place for when it doesn’t.

When market sentiment changes on smaller shares, its price can about-turn very quickly, taking all of your hard-won profit and maybe more. Getting into the position is only half the plan of trading; in fact, some would say it actually accounts for less than that. Where you get out will determine just how successful penny stock trading could be for you.

Spread bet on over 9,000 stocks

Penny stocks to watch in the UK

We offer trading opportunities on over 9,000 popular global stocks via spread bets and CFDs, some of which are penny stocks in the UK. Penny stocks are often small or start-up companies chasing growth opportunities, though you will also find some big brand names that have experienced steep downtrends in their market value. When trading on these stock CFDs, you won’t have access to the underlying instrument but instead speculate on its price movements.

Below are some examples of UK penny stocks that currently trade for around £1 or less on the London Stock Exchange. This information is accurate as of December 2021.

InstrumentMin spreadMargin ratePriceOverview
----Largest coach operator in the UK with around 2.5 million daily customers, running 8,300 bus, coach, and tram services per year.
----Formerly Connect Group, the UK’s largest distributor of newspapers and magazines, as well as stationery, books, and consumables.
----Irish low-cost airline with primary bases in Dublin and London Stanstead. Largest European budget airline by scheduled passengers flown, serving over 40 countries.
----The UK's largest online-only white goods and electricals retailer, selling products such as fridge-freezers, washing machines, vacuum cleaners, and printers.
----Market leader in the manufacturing and operation of photobooths, vending equipment, and other consumer solutions.
----Utility company that owns British Gas, the UK’s largest domestic supplier of gas with over 7 million customers, as well as an electricity provider.
----Chain of over 650 restaurants and public houses. Leading brands include Wagamama, Frankie & Benny’s, and Chiquito.
----A real estate investment trust (REIT) that owns, manages and develops European retail properties. The group’s portfolio is made up 20 flagship destinations.
----A multinational textiles company, it’s the world’s largest manufacturer and supplier of industrial threads and supplies, also producing zips and fasteners.
----Anglo-Russian gold mining company that explores, extracts, and produces a stable output of low-cost gold, mainly within the region of far-east Russia.

Pricing is indicative. Past performance is not a reliable indicator of future results.

When trading penny stocks in the UK, it can be hard to distinguish between companies that have promising growth prospects and companies that do not. Therefore, it is recommended to thoroughly research companies before you take a position on their stocks.

Example of a penny stock trade

Penny stocks can be traded on in the UK via spread bets and CFDs, in the same way as any other market on our trading platform. When trading on penny stocks, you either go long and ‘buy’ or go short and ‘sell’ the asset. The option to ‘buy’ or ‘sell’ offers the trader to play both sides of the market, doubling the potential opportunities available in penny stock markets.

An example of a UK penny stock listed on the London stock exchange is Petra Diamonds.

As of March 2020, Petra Diamonds was trading for around 1.20p, with a market cap of just £10.4m.

Just 3 months earlier, Petra Diamonds was trading at 9.40p, around a 90% upside.

Although there can be large gains when trading penny stocks, there are also risks of losing a significant amount of your investment in a short period. Stop-loss orders and take-profit orders can both be used to manage risk in an attempt to limit your losses and capture profit in an automated manner.

If you believe that the price of Petra Diamonds could increase in the future, you could go ahead and open a ‘buy’ position. As the stock price is so low, if the company ever made a comeback you could reap large rewards. However, the chances of the stock staying stagnant or losing more value are also just as possible.

Where to trade on penny stocks

With spread betting and CFD trading, you can access and trade your favourite financial instruments from around the world on one streamlined platform. This includes thousands of shares, including some penny stocks in the UK and other penny stocks from international markets like the US.

Penny share trading platform

Whether you’re an experienced trader or new to the market, our Next Generation trading platform​ can be personalised for your individual trading needs. Our innovative platform combines cutting-edge trading tools​ with a straightforward interface.

Penny stocks app

Our award-winning spread betting and CFD mobile trading app​ enables you to trade on the go, wherever and whenever you want. Available for iPhone, iPad and Android, our trading mobile apps include full order-ticket functionality and advanced charting, specifically designed for mobiles devices.

How to trade the financial markets

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How can I start trading penny shares?

An online trading account with CMC Markets can provide you with the opportunity to speculate on the prices of penny stocks. You can open a trading account with us to gain access to our library of 9,000 stocks and 1,000+ ETFs. A demo account is recommended for traders to test their trading strategies with £10,000 of virtual currency in a risk-free environment. This can be especially useful if you are a new trader or an experienced trader who wishes to test a new strategy.

If you are looking for a how-to trade guide that covers various types of stocks, visit our article on how to trade stocks and shares, which provides a comprehensive overview of share trading.

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Are penny stocks good for beginners?

Penny stocks can be a good way for beginners to start trading , as they usually sell for under $5 a share in the underlying shares market. Learn how to succeed in share trading with our extensive guide.

Can you profit from penny stocks?

Penny stocks can be volatile in the share market but some investments with high growth potential may lead to profits in the future. If you’re looking to invest in more typically stable and reliable shares, some traders choose to focus on blue-chip stocks instead, as these are more established and may be less prone to risks.

What’s the difference between penny stocks and small-cap stocks?

Both small-cap stocks and penny stocks represent shares with low market capitalisations. However, penny stocks tend to be traded over-the-counter (OTC) and they have a lower share price of under $5 per share. Learn more about trading on shares.

How do I choose which penny stock to invest in?

It’s a good idea to conduct research before choosing a penny stock to trade. For example, our news and analysis section of the website posts daily updates on stock market data, as well as fundamental analysis reports for company earnings.

Do penny stocks pay dividends?

Penny stocks with minimal revenue rarely pay dividends to investors, as this tends to be reserved for companies with more stable cash flows and balance sheets. For information on some of the top performing stocks, read our guide to the best-yielding dividend stocks in the UK.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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