In the UK, penny stocks are listed on the London Stock Exchange’s Alternative Investment Market (AIM). Investors can buy and sell shares in a penny stock as they do with the main market with an investment account.

However, not all stock brokerages offer access to AIM due to the high risk of this stock market segment. If you are determined to invest in UK penny stocks, make sure to find a broker that allows you to access AIM.

Although penny stocks can add excitement to the investing journey, their high-risk nature renders them unsuitable for many individuals. Fortunately, there are alternative options to investing in penny stocks.

Option 1: Small-cap Stocks

As we discussed in another article, small-cap stocks and penny stocks share a lot in common while differ in many ways.

Being young businesses, small-cap stocks offer plenty of upside potential, but they are more liquid and less risky than penny stocks. While they remain within the risky investment class, the possibility of failure is considerably lower compared to penny stocks.

Option 2: Fractional Shares

If the low price is the main attraction to you, then you may also consider investing fractional shares.

Fractional shares allow you to purchase a partial share instead of paying the price for one whole share. Many high-quality stocks trade at very high prices. But with fractional shares investing, you might be able to afford them, and you will get the same percentage gain as all other inventors.

For example, say you were interested in buying shares of Microsoft, which trade at around $410 a share as of early May. If you only had $100 to invest, you could buy 100/410 of a share or about 24% of a share. Later Microsoft stock surged 30%, someone with a $410 share should make 30% or $123, while you’d make $30 on your $100 investment.

Option 3: Exchange-traded Funds

ETFs provide investors with the opportunity to track specific indices, such as the FTSE 100, by holding shares of the companies listed within that index. These funds are traded on exchanges like stocks and offer relatively lower share prices compared to traditional index funds or mutual funds.

This unique feature allows investors to achieve instant diversification even with a small investment. Depending on the ETF, you can purchase shares for as little as $20 or $30 each, although some ETFs may have higher prices. Despite being higher than a single share of a penny stock, investing in an ETF grants ownership in a portfolio of listed and regulated companies.

Moreover, many brokers offer commission-free options for ETFs, which helps cut down on transaction costs that may be associated with trading penny stocks, especially if the broker imposes additional fees for OTC stock trades.