How To Buy The Best (ASX) Penny Stocks In Australia: Explained

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Students want to know how to invest in Australia's best ASX penny stocks.


Penny stocks, generally called small caps in Australia, lure investors due to their low price and upside potential. At the same time, their highly volatile and speculative nature can make them a risky investment.


Many companies are trading on the Australian stock exchange (ASX) for less than a dollar. If the idea of trading in penny stocks captivates you, but you need help figuring out how to begin, then this guide is for you.


Learn about ASX penny stocks in Australia, the risks and potential rewards of penny stock trading, how to pick them, the best trading platforms, and the steps to buy them in Australia.



1. What Are Penny Stocks?


Penny stocks are just like regular stocks listed on the stock market. They are usually companies with a market cap of below AUD 50 million.


What makes them an appealing trading option is the price to trade them. Typically, penny stocks are available for less than $5. Their low share price indicates their highly speculative nature, with the possibility of significant growth.


The most common characteristics of Penny Stocks:


  • Cheap, low-priced shares 

  • New and recently listed companies via Initial Public Offerings (IPOs)

  • Market cap below $50 million

  • Extreme price fluctuations of around 20%

  • Share price below $5

  • Limited financial track record

  • It doesn't pay dividends

  • Extremely volatile

  • Low liquidity levels



2. How Do You Trade Penny Stocks?


You must have a solid strategy before investing in a speculative market like penny stocks.


If you are a newbie penny stock trader, you should know three golden rules before you start:



  • 1. Do Fundamental Analysis: Always conduct thorough research before investing in a penny stock. Go with a company stock that is reputable, large-cap, offer good liquidity, and has a good track record. Avoid penny stocks of new companies with no track record. 


  • 2. Diversify Your PortfolioAvoid investing in a specific penny stock. Consider allocating your investment amount to different quality penny stocks. Investing in various companies helps decentralise your risk and reduce your dependency on one stock.


  • 3. Avoid Highly Volatile Penny Stocks: Penny stocks come in different flavours. Some possess little liquidity, while others are highly volatile. Identify companies with low stock prices and large market valuations to managing your investment risks.



3. Steps To Buy Your First ASX Penny Stocks In Australia



Step 1: Choose The Right Trading Platform


Choose a cutting-edge trading platform that fulfils the following requirements: 


  • Affiliated with the Australian Securities Exchange

  • Easily accessible via web or mobile

  • It has powerful tools to help you analyse the stock and make the proper selection. 

  • It should charge low brokerage or commission as higher brokerages can quickly eat any of the gains you make from your trade. 

  • It should provide a robust trading infrastructure that offers uninterrupted connectivity to the exchange that helps mitigate technical glitches or connectivity loss. 

  • Should offer good customer support conveniently accessible through commonly used mediums.



Step 2: Provide The Necessary Documentation


Having found the right trading platform, open a trading account by providing your personal information and ID proofs.


Most brokers ask for a driving license copy, a passport as identity proof, and a copy of a bank statement or recent utility bill as part of the account creation process.



Step 3: Find A Strategy


Plan a strategy and stick to it. Decide which penny stocks you want to invest in and how much money you can afford.


Don't go for a penny stock just because it is cheap. The price could be low as it is less in demand among investors.


You can refer to the list of penny stocks on ASX here. Also, decide at what price you would sell if the shares were to fall to cut your losses.



Step 4: Fund Your Trading/Brokerage Account


Confirm your payment details to fund your account with a credit card, bank transfer, or debit card.


Choose from any of the provided deposit methods to fund your account, such as debit card, credit card, bank wire transfer, and e-wallets like PayPal, Skrill, and Neteller.



Step 5: Buy Your First Penny Stock


Search the trading platform to find the penny stock you want to buy.


Place a Market order or Limit order to buy the penny stock. It's the same as buying regular shares. Enter the number of shares you want to buy at the desired price and click on the "Buy" button.


You may also use risk management tools like "stop-loss" to define your exit in the trade.


Congrats! You have bought your first penny stock.



4. Are Penny Stocks Worth Trading?


Penny stocks are ideal for speculators with high-risk appetites who want to double or triple their portfolio without a significant capital investment. They are not a type of instrument suited for long-term investment. They come with great risk and a high chance of total capital loss.


Penny shares are more volatile than mid-cap or large-cap shares. Due to this, any slight change in their value results in significant price swings, leading to both sudden and extreme losses and gains.


Small-cap companies have high growth potential and scope for expansion and can generate good returns in a short period. This is what makes them an exciting bet over mid-cap and large-cap companies.


However, there is also a possibility that a penny stock may fail to withstand the economic crisis, and collapse, thereby leading to huge losses to investors. 


Trading penny stocks can be worthwhile only if you invest in quality stocks after thorough research. Spread your investment across a range of stocks, and implement a sound risk management plan.



The Pros of Investing in Penny Stocks:


  • Due to low prices, they don't require investors to spend a lot to generate significant gains.

  • Penny stocks, especially small-cap and newly listed companies, present high growth opportunities.

  • Their highly volatile nature and rapid price movements make it an exciting trading experience for investors with a high-risk tolerance.

  • Their large price swings make them ideal for day trading.



The Cons of Investing in Penny Stocks:


  • Riskier compared to other stocks and ETFs with a longer financial track record. 

  • As operators often manipulate them, they can be a value trap for beginner investors. 

  • A highly volatile nature can cause massive gains and losses in a day or a few days. This is what makes them a strict No for risk-averse investors.

  • No dividends and other corporate actions



5. Is Investing In Penny Stocks For You?


People who can relate to the below trading behaviours may succeed with penny stocks:


  • Those with a high-risk tolerance

  • Experienced investors

  • Those willing to cut their losses if the share price falls drastically

  • Those who are comfortable taking a bit of a "gamble."

  • Those with a long-term investment horizon can ride out of the volatility over time (fundamentally strong stocks always rise over the term). 



6. How Do You Pick A Good Penny Stock?


Here are some helpful tips that could help you make a sensible choice:



Step 1: Conduct Research


Read reputable investing and trading publications, and refer to credible websites to gain the latest analyst insights to find good penny stocks to trade on ASX.



Step 2: Undertake Analysis


Some traders prefer fundamental analysis, while others choose technical analysis when selecting the stock.


It is good to perform both types of research. It ensures the company you choose is financially strong, well-established, has promising business growth, and is available at the right price to buy.  


  • Use Fundamental Analysis to find established penny stock companies with solid financials and consistent performance in the past. Look at the business of the company to determine its future growth potential. This will give you an idea of whether the price of the penny stock will rise. When deciding on a penny stock, value the company's business, client base, and strong fundamentals over its price.


  • Use Technical Analysis to identify the stock's crucial levels of support (entry point) and resistance (exit point). With this knowledge, you can take advantage of short-term price swings or momentum breakouts to make a decent profit. Many top stock brokers in Australia provide a range of technical indicators, charts, and other tools to find the right time and price to buy any stock.



Step 3: Fund Allocation


Diversify your portfolio by spreading your cash across various companies to reduce your potential for loss. Search for high-volume penny stocks on the ASX with high liquidity.


Those with a few hundred thousand shares traded daily are ideal, so you are likely to get the chance to enter and exit the trade.



7. How Long Does It Take To Learn Trading Penny Stocks?


Trading in penny stocks is more complex than buying regular shares in companies with a large market cap. It is because they are mostly highly volatile small-cap companies that are usually associated with high risks.


So, before investing in penny stocks, learn how they work. Refer to trusted publications and educational resources or watch YouTube videos about penny stock trading. 


The best penny stock brokers provide learning guides and tools to help users do fundamental market research and technical analysis to analyze penny stocks.


The time to understand penny stocks depends on your study method, knowledge base (beginner-level or advanced-level), and time you spend learning.


You may need to spend  one hour to one month to get the desired knowledge in penny stock trading.



8. What Are Popular Trading Platforms For Penny Stocks? 


There are different ways to get exposure to a wide range of penny stocks in Australia:



An excellent platform to trade in penny stocks depends on an individual's comfort, preference, and experience in trading.


Below is a comparison of some trading platforms:



Provider Name Price Per Trade Inactivity Fee Markets Served International
IG Share Trading $8 No ASX shares, US shares, UK shares, ETFs, and more Yes
CMC Markets Invest $0 No ASX shares, Global shares, mFunds, ETFs Yes
Tiger Brokers $6.49 No ASX shares, Global shares, Options trading, US shares, ETFs Yes
Monex Share Trading $19.95 No ASX shares, Global shares, US shares, ETFs Yes
Selfwealth (Basic account) $9.50 No ASX shares, US shares Yes
Moomoo Share Trading $8.80 No ASX shares, US shares, ETFs Yes
Syfe US$0* $0 US shares Yes
Superhero share trading $5 No ASX shares, US shares, ETFs Yes
Saxo Capital Markets (Classic account) $8 No ASX shares, Global shares, ETFs Yes



9. Frequently Asked Questions (FAQs)



What Is The Easiest Way To Buy Penny Stocks?


An online trading platform is the easiest way to buy top penny stocks on the ASX today.


Most Australian trading platforms offer tools and features that suit your financial goals helping you to pick the best shares. Refer to the above list to find the right penny stocks brokerage firm.


Additionally, ensure that your chosen broker supports MT4/5 so that you can deploy an automated penny stocks strategy.



Is It Difficult To Sell Penny Stocks?


Penny stocks are highly volatile by nature. These stocks' prices fluctuate fast from high to low or vice versa. It poses a problem for penny stock traders trying to sell their stocks.

These traders may face liquidity problems, making selling the stock a challenge. Under favourable market conditions, penny stocks may rise by 1,000% (no guarantee).


Finding a buyer willing to buy a stock at a high price makes it more difficult.



Can You Make Money With Trading Penny Stocks?


Penny stocks are known for their high-risk profile. They have the potential to offer extreme returns or lead to massive capital losses instantly.

Penny stocks offer a low entry and let you trade them at a lower price range, generally below $5. However, over 90% of penny stocks fail and do not succeed.


When looking at their past performance, penny stocks have an average negative annual return of 24%, which shows a greater risk of losing money.


If you still want to buy penny stocks, conduct thorough research before selecting any penny stock. A good benchmark is the company's value, market capitalisation, years of establishment, reputation, top management, growth potential, volatility level, and liquidity.


If you buy penny stocks without proper research, then you are gambling. You can minimise the risk of losing money by researching before placing a buy trade on a penny stock.


Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.



How Do You Start Trading Penny Stocks? 


Trading in penny stocks is the same as buying and selling other shares. You need a brokerage account offering the facility for penny stocks trading in Australia.


You can find some popular trading platforms in Australia below:

  • – Penny stock trading platform appropriate for beginners 

  • Pepperstone – Australia-based penny stock trading platform 

  • Avatrade – Reputable penny stock trading platform with an enormous market selection 

  • FXCM –100% commission-free penny stock trading platform 

  • Australia IG – The most reliable penny stock trading with over 17,000 stocks to trade

  • CMC markets – No deposit fee for penny stock trading

  • Libertex – Best Australian Penny Stock Trading Platform for CFD Traders

  • TradeStation – Best Penny Stock Trading Platform in Australia for Experienced Traders

  • Interactive Brokers – Best Australian Penny Stock Trading Platform for OTC Stocks



How Can Beginners Start Trading Penny Stocks?


Penny stocks tempt beginners by offering a cheaper entry point and significant growth potential (Higher risk).


Due to their higher risk, higher reward nature, penny stocks have the potential to provide strong returns to their investors.


However, remember that these stocks have a smaller market capitalisation and are more susceptible to risks than more established mid-cap and large-cap players.


Not all penny stocks are risky. If you pick quality penny stocks with a strong track record of high performance over time, they tend to be less volatile. They can also help lower your investment risk.


Experts advise that beginners must perform a thorough fundamental analysis to build a watchlist of stocks positioned for future value growth. Taking a day trading course is beneficial for learning how to do basic and technical research on the stock to make a profitable investment.


Before trading penny stocks with real money, beginner traders should get comfortable with paper trading. A demo trading account is the safest means to learn to trade penny stocks without losing real money. 


Many stock brokers provide virtual funds to traders allowing them to practise their penny stock trades in a risk-free environment using a variety of technical indicators.


Additionally, traders should keep a diary to record what went well and where improvements are required. It will help them refine their trading strategies.


After getting accustomed to fluctuations in price patterns, they can start learning the ins and outs of the market and trading with real money.



Are Penny Stocks Legal In Australia?


Yes. Penny stocks are legal, and many are traded on ASX daily.



Are Penny Stocks Trading Taxable In Australia?


Yes. Whatever profit you make by trading in penny stocks is taxable in Australia.


The amount of tax payable depends on the time you held the stock.


If you hold the penny stocks for below 12 months, you are liable to pay tax on the entire profit.


Post 12 months, you have to pay tax only on 50% of the profit.



Do I Owe Money If My Stock Goes Down? 


You will not necessarily owe money if a stock price falls.


If the stock price falls beyond the percentage of the margin you used to fund the trade to owe money, then you will owe the money. 


If you don't use margin while buying penny stock, then you will never owe money on a penny stock.



What Are Some of The Most Successful Penny Stocks In History?


You can find below penny stocks that have achieved remarkable success throughout stock market history.


  • Sundial Growers Inc (NASDAQ: SNDL)

  • Las Vegas Sands Corp. (NYSE: LVS)

  • Ford Motor Company (NYSE: F)

  • GGP Inc (NYSE: GGP)

  • Pharmacyclics, Inc. 09.30 NASDAQ: PCYC

  • Mylan NV 04.30 NASDAQ: MYL

  • Concur Technologies, Inc. (NASDAQ: CNQR)

  • Sirona Dental Systems, Inc. (NASDAQ: SIRO)

  • American Axle & Manufact. Holdings, Inc. (NYSE: AXL)

  • GameStop (NYSE: GME)

  • Castor Maritime (NASDAQ: CTRM)

  • AMC Entertainment Holdings Inc. (NYSE: AMC)

  • True Religion (formerly NASDAQ: TRLG)

  • Pier 1 (formerly NYSE: PIR, now OTCPK: PIRRQ)

  • Monster Beverage Corporation (NASDAQ: MNST)

  • Medifast Inc. (NYSE: MED)

  • Apple (NASDAQ: AAPL)

  • Amazon (NASDAQ: AMZN)



10. Conclusion


Penny stocks are known for their speculative nature, high volatility, and relatively low liquidity. Consequently, trading these stocks requires a strong and bold approach.


Nonetheless, when approached intelligently and integrated into a well-diversified investment portfolio, penny stocks can potentially mitigate risks while providing significant returns. This potential for success lies in thorough research and investing in quality stocks.


Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk.



The advice and information on is in general nature and should not be seen as a replacement for independent financial advice. We strongly encourage readers to consult with financial experts regarding their own financial decisions and investments.

Please note that the information presented on is solely for educational purposes. Every individual's financial situation is unique, and the products and services we mention may not suit everyone. We do not provide financial advice, advisory, or brokerage services nor endorse buying or selling specific stocks or securities. It's essential to know that information might have changed since publication and past performance does not guarantee future results.



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