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Watchlists-Penny Stock Investment Strategy

Penny Stocks in Canada: A Comprehensive Guide

Written by Tim-bot
Reviewed by Friedrich Odermann Fact-checked by Ed Weinberg
Updated 12/5/2023 20 min read

Penny stocks in Canada, trading for less than $5 a share, are a unique facet of the stock market, offering a blend of high potential returns and significant risks. These stocks are known for their low share price and are typically issued by small-cap companies, including startups and growth-stage businesses. While they offer a chance at substantial profits due to their low entry cost, they also carry a higher risk of volatility and less liquidity compared to more established stocks. For traders in Canada, navigating the penny stock landscape requires a keen understanding of market dynamics and a disciplined trading strategy.

You should read the article because it demystifies the high-stakes world of Canadian penny stocks, offering a disciplined approach to navigating their potential rewards and inherent risks.

I’ll answer the following questions:

  • What are Canadian penny stocks?
  • Why are penny stocks considered risky?
  • How do I buy penny stocks in Canada?
  • Can you buy Canadian penny stocks on Wealthsimple?
  • What factors contribute to the volatility of penny stocks?
  • Are there penny stocks on the TSX?
  • What are the characteristics of penny stocks?
  • What tips and strategies should I consider for investing in penny stocks?

Let’s get to the picks!

Table of Contents

What Are Canadian Penny Stocks?

Canadian penny stocks are equities that trade at a relatively low price and market capitalization, typically outside of the major exchanges. They’re often associated with small companies, including those in the tech stocks sector, and can be a high-risk, high-reward option for traders. These stocks are influenced by various factors, including interest rates and industry earnings, which can impact their value. Investors often use a screener to identify these stocks based on specific criteria such as revenue, debt levels, and cash on hand.

Characteristics of Penny Stocks

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Canadian penny stocks are characterized by their low market capitalization and share price, often trading outside of the major stock exchanges like the TSX. They are a draw for investors due to their affordability and the allure of significant returns on investment. However, these stocks can be subject to abrupt price movements and may lack the transparency and regulatory oversight found in more prominent markets. Investors should approach penny stocks with a strategy that includes thorough research and risk management to capitalize on their potential while mitigating the inherent risks.

Overview of the Canadian Penny Stock Market

The Canadian penny stock market is a vibrant ecosystem where investors can find opportunities in sectors like mining, energy, and technology. These markets operate both on and off major exchanges, with many penny stocks trading over-the-counter (OTC). The Canadian market is particularly known for its resource-based companies, which can provide unique opportunities for penny stock traders. However, due to the less stringent listing requirements of OTC markets, due diligence becomes even more critical to avoid potential scams and financial pitfalls.

The Canadian penny stock market is not just about tech and innovation; it also offers opportunities in more traditional sectors like oil. With the global energy landscape in flux, penny oil stocks in Canada present a unique, albeit speculative, investment avenue. These stocks can be particularly sensitive to geopolitical events and changes in oil prices, making them a volatile but potentially rewarding play. For those interested in the intersection of energy and equity, here’s a look at the top penny oil stocks in Canada that are currently standing out in the market.

The Allure of Penny Stocks in Canada

The allure of penny stocks in Canada lies in their potential for significant returns. For investors willing to conduct thorough analysis and shoulder the risks, these equities can offer a chance to invest in emerging industries like metals, gold, and copper production, often before these companies hit the mainstream. Analysts often spotlight penny stocks in newsletters and articles, drawing attention to their earnings potential and growth stages, which can attract a range of investors from social media-savvy individuals to more traditional investors.

The allure of penny stocks in Canada is often magnified by the buzz from investor communities. Reddit, a hub for such discussions, provides a wealth of insights and tips from a diverse range of perspectives. When considering penny stocks, tapping into the collective wisdom of Reddit users can uncover hidden gems and provide a pulse on market sentiment. For a snapshot of the best penny stocks in Canada according to Reddit users, you can explore this compilation that captures the stocks making waves within the community.

The Secret Behind the Canadian Penny Stocks Resilience

Canadian penny stocks have shown a surprising resilience, often attributed to the country’s stable economy and rich natural resources. Factors such as the global demand for commodities, which Canada has in abundance, contribute to the stability and growth of these low-cost shares. Additionally, the Canadian financial system’s robust regulatory framework provides a level of investor protection that can instill confidence in the penny stock market. Nonetheless, traders should remain vigilant, as these stocks can still be susceptible to market fluctuations and speculative trading.

Factors Contributing to the Stability and Growth of Penny Stocks in Canada

Several factors contribute to the stability and growth of penny stocks in Canada. The country’s strong governance on financial practices and a diverse economy provide a fertile ground for small-cap companies to thrive. Moreover, Canada’s emphasis on innovation, especially in the tech and green energy sectors, has created new frontiers for penny stocks. While these factors can lead to growth, they also require investors to stay informed and selective, as not all penny stocks will capitalize on these advantages.

Top Canadian Penny Stocks to Consider

My top Canadian penny stock picks are:

When considering top Canadian penny stocks, investors look for companies with solid fundamentals, such as sustainable debt levels and promising revenue streams. These might include firms involved in the development of new technologies or commodities like gold and copper. The best candidates are often found through a combination of screener tools, expert analysis, and a review of financial data, with a keen eye on industry trends and expectations.

Before you send in your orders, take note: I have NO plans to trade these stocks unless they fit my preferred setups. This is only a watchlist.

The best traders watch more than they trade. That’s what I’m trying to model here. Pay attention to the work that goes in, not the picks that come out.

Sign up for my NO-COST weekly watchlist to get my latest picks!

BlackBerry Limited (NYSE: BB)

My first Canadian penny stock pick is BlackBerry Limited (NYSE: BB).

BlackBerry, once a leader in mobile technology, has pivoted towards cybersecurity and software services. While its share price has seen ups and downs, it remains a topic of interest among investors. The company’s operations have expanded into various segments, including IoT and enterprise software. If you’re considering investing in BlackBerry, pay attention to its revenue growth and recent acquisitions, as these could be indicators of future performance.

InMed Pharmaceuticals Inc (NASDAQ: INM)

My second Canadian penny stock pick is InMed Pharmaceuticals Inc (NASDAQ: INM).

They are a promising biotech company specializing in cannabinoid therapies. INM has shown consistent growth in revenue and products. Just as I always look for patterns in stocks, it’s important to track consistent earnings highs and lows in biotech.

Tilray, Inc (NASDAQ: TLRY)

My third Canadian penny stock pick is Tilray, Inc. (NASDAQ: TLRY).

Tilray is a pharmaceutical and cannabis company that has garnered a lot of attention. Its share price can be volatile, so it’s essential to consider its EBITDA, cash flow, and debt levels before investing. The company has made strategic acquisitions to expand its product line and increase its market share. Keep an eye on its performance in both the North American and international markets.

Bright Minds Biosciences Inc (NASDAQ: DRUG)

My fourth Canadian penny stock pick is Bright Minds Biosciences Inc (NASDAQ: DRUG).

Bright Minds is a biotech company focusing on the development of therapies for neuropsychiatric disorders. While it’s a smaller player, its unique approach to drug development makes it an interesting investment opportunity. Before diving in, consider the company’s revenue growth, its research and development strategy, and the competitive landscape in the biotech industry.

Cybin Inc (AMEX: CYBN)

My fifth Canadian penny stock pick is Cybin Inc (AMEX: CYBN).

Cybin is another biotech company, but it focuses on psychedelic therapies for mental health conditions. The company is in the early stages of clinical trials, so it’s considered a higher-risk investment. Look at the company’s financials, including its cash flow and debt levels, to gauge its long-term viability. Keep an eye on news about its clinical trials, as positive results could significantly impact its share price.

Risks and Rewards of Penny Stocks

The risks and rewards of penny stocks are closely tied. While they offer the chance for substantial earnings, they also come with a high level of volatility and uncertainty. Factors such as fluctuating interest rates, industry production changes, and shifts in commodity prices can all dramatically affect the value of penny stocks. Investors must balance the potential for high returns against the possibility of losing their entire investment.

Understanding the risks and rewards of penny stocks is crucial, and part of that is knowing the rules that govern trading. In Canada, the Pattern Day Trader (PDT) rule, familiar to U.S. traders, does not apply, offering a different trading dynamic. This absence allows for more flexibility in trading activities but does not diminish the need for a disciplined approach. For Canadian traders, it’s essential to understand the regulatory environment to navigate these waters effectively. Learn more about how the PDT rule applies in Canada and what that means for your trading strategy.

Why Are Penny Stocks Considered Risky?

Penny stocks are considered risky due to their high volatility, limited liquidity, and often less public information. These factors can lead to wide price swings and a lack of buyers when you’re ready to sell. Additionally, penny stocks are frequently the target of price manipulation and pump-and-dump schemes, making it crucial for investors to conduct extensive research and approach each potential investment with a critical eye.

Factors That Contribute to the Volatility of Penny Stocks

The volatility of penny stocks can be attributed to several factors, including thin trading volumes, limited company history, and speculative news or promotions. With fewer shares traded daily, penny stocks can move dramatically on small buy or sell orders. The lack of a substantial track record makes it difficult to gauge a company’s future performance, and speculative news can lead to irrational trading behavior, further fueling volatility.

Pros and Cons of Penny Stocks

The pros of penny stocks include their low entry cost and the potential for rapid growth, which can be appealing to those looking to expand their portfolios with high-risk, high-reward assets. On the flip side, the cons are significant, with penny stocks often experiencing high volatility, limited liquidity, and less regulatory oversight, which can lead to challenges in both buying and selling positions.

Are Penny Stocks Worth It?

Penny stocks can be worth it for the right investor—one who understands the market and is willing to accept the high risk for the potential of high rewards. These stocks can offer significant gains if a company becomes successful, but this is not the norm. The key is to recognize that penny stocks are not a lottery ticket but rather a speculative part of a well-rounded investment strategy.

Tips and Strategies for Investing in Penny Stocks

Investing in penny stocks requires a strategy that encompasses thorough research, a clear understanding of the market, and a strong risk management plan. Utilizing tools like screeners can help identify potential investments, while staying informed through articles, newsletters, and social media can provide insights into market sentiment. Setting clear goals and understanding the stages of contract and production within the relevant industries can also guide investment decisions.

Do Your Research

When it comes to penny stocks, doing your research is non-negotiable. This means digging into financial statements, understanding the company’s business model, and keeping an eye on industry trends. Knowledge is power, and in the penny stock world, it’s your best defense against making uninformed decisions that could lead to substantial losses.

Diversify Your Portfolio

Diversification is a cornerstone of sound investing, and it’s especially crucial in the volatile world of penny stocks. Spreading your investments across various sectors and companies can help mitigate the risks associated with any single penny stock’s unpredictable nature.

Set a Budget

It’s essential to set a budget and stick to it when trading penny stocks. Decide in advance how much of your capital you’re willing to risk on high-volatility investments, and never invest more than you can afford to lose. This discipline will help you manage your risk and keep potential losses within acceptable limits.

Avoid Chasing Hype

One of the biggest traps in penny stock investing is getting caught up in the hype. Be wary of stocks that are the subject of aggressive promotion and remember that if something sounds too good to be true, it probably is. Always base your investment decisions on solid research rather than the noise of the crowd.

Use Limit Orders

To avoid buying or selling at unfavorable prices, use limit orders when trading penny stocks. This allows you to set the maximum price you’re willing to pay or the minimum price you’re willing to accept, giving you control over your transactions and helping to protect your investments.

Stay Updated

The penny stock market moves fast, and staying updated on market trends and company news is crucial. Regularly check in on your investments and the broader market to make informed decisions and adjust your strategy as needed.

Understand the Risks

Before diving into penny stocks, make sure you fully understand the risks. These can include everything from liquidity issues to the potential for fraud. Being aware of these risks can help you navigate the penny stock market more safely and effectively.

Look for Liquidity

Liquidity is a critical factor in penny stock trading. Look for stocks with higher trading volumes, which can make it easier to enter and exit positions. Low liquidity can lead to price manipulation and difficulty selling your stock.

Be Skeptical of Promotions

Penny stocks are often the subject of promotions and hype. Approach these with skepticism and do your due diligence to ensure you’re not falling for a pump-and-dump scheme.

Set Clear Exit Strategies

Having clear exit strategies in place is vital. Decide in advance at what price point you’ll take profits or cut losses, and stick to your plan. This discipline can help you avoid emotional decision-making and protect your capital.

Stay Informed

Staying informed is key to success in penny stock trading. Keep up with financial news, company announcements, and market trends to make educated decisions.

Consider the Source

When researching penny stocks, consider the source of the information. Rely on reputable news outlets and financial statements rather than promotional materials or unverified online forums.

Monitor Regularly

Penny stocks require regular monitoring due to their volatility. Keep a close eye on your investments and the market conditions to react quickly to any changes.

Avoid Overtrading

Overtrading can lead to excessive fees and can cloud your investment strategy. Be selective with your trades and focus on quality over quantity.

Stay Calm and Patient

Patience is a virtue in the penny stock market. Don’t let short-term fluctuations lead to rash decisions. Stay calm and focused on your long-term strategy.

Where to Buy Canadian Penny Stocks

Canadian penny stocks can be purchased through brokerages that offer access to the TSX Venture Exchange and over-the-counter markets. These services provide tools and resources for investors to conduct due diligence. Additionally, some online platforms and banks offer screener tools to help filter through the vast range of available penny stocks, allowing investors to find those that match their investment goals and risk tolerance.

Key Takeaways

While Canadian penny stocks can offer significant growth opportunities, they come with inherent risks that must be carefully managed. Investors should use a range of tools and services to conduct thorough research and analysis, set realistic goals, and remain vigilant about the stages of development and financial health of the companies they invest in. Remember, investing in penny stocks is not for everyone, and it’s crucial to consider your own financial situation and consult with a financial advisor if necessary.

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What Canadian penny stocks are on your watchlist? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions (FAQs)

How Do I Buy Penny Stocks in Canada?

Buying penny stocks in Canada typically involves opening a brokerage account with a firm that provides access to the TSX, Nasdaq, or OTC markets. Look for brokerages that offer low fees and robust trading platforms to maximize your investment potential.

Can You Buy Canadian Penny Stocks on Wealthsimple?

You can buy penny stocks on Wealthsimple Trade if they’re listed on the major American and Canadian exchanges, such as the Nasdaq, New York Stock Exchange (NYSE), and Toronto Stock Exchange (TSX). Wealthsimple Trade doesn’t let you trade OTC stocks.

Are There Penny Stocks on The TSX?

While the TSX is known for more established companies, it does list some stocks that could be considered penny stocks. These are usually found in the TSX Venture Exchange, which features smaller or emerging companies.

What Should You Know About Reporting Penny Stocks in Canada?

When reporting on penny stocks in Canada, content creators must ensure that the information on their page is accurate and reliable. For example, details about securities and money invested should be based on verifiable examples. It’s also advised to provide a disclaimer noting that such content isn’t professional investment advice.

Where Can I Find Reliable Examples of Penny Stock Success?

For those researching penny stocks, look for pages that offer comprehensive reporting on securities. Ensure that these resources provide concrete examples of penny stock trades and not just theoretical answers. It’s crucial to heed the advice given by experienced traders and to be aware of the disclaimer that trading involves risks.

What Are the Chances of Finding Good Penny Stocks in Canada?

The chances of finding promising penny stocks can be improved by studying historical contracts and board decisions of companies. Jobs in financial analysis may also provide insights into potential penny stock opportunities. Remember, penny stock investments should be approached with caution and not solely based on advice from unverified sources.

How Do Disclaimers Affect Penny Stock Advice?

Disclaimers are essential in the realm of penny stocks as they clarify that advice given is not a guarantee of money or success. They remind investors that every example provided is unique and that the chances of replicating such success require careful consideration of the securities and contracts involved.

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Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”