Penny Shares

For our US readers penny shares is the more common term for what people in the US call penny stocks.

The term “penny share” doesn’t have a set definition. Different people pin different meanings on the term. But very simply, a penny share is a share which presents some degree of risk due to the low value it holds. Some brokers put a ceiling on the value of a penny share – commonly no higher than £3. Others stipulate a ceiling on the Market Capitalisation of the company itself. This does not necessarily mean the value of the company is low, however. A company with 10 million shares priced at 1p bears the same value as a company with 1 million shares priced at 10p.

Some financial commentators describe penny shares as fool’s gold. While there are risks, this criticism is misleading. Fool’s gold is exactly that. It glistens like gold, but there the similarity ends. Penny shares, on the other hand, have massive potential. There is no question that this potential is fraught with risk. Penny shares in a new company could end up being worth precisely what their name suggests. But with a little industry know-how, they can be an exciting and lucrative investment. What’s more – and this is the exciting part – the actual potential for the net worth of a penny share is limitless.
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