"Penny shares" Definition
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 Glossary   >   P   >   "Penny shares" Definition   

        Penny shares

Literally, any share costing less than 100p, but in a recent paper on the subject, the Financial Services Authority designated penny shares as shares which have limited liquidity - in other words, that are hard to buy and sell in quantity without moving the price. Specifically, the FSA singled out those with a spread of 10% or more between buying and selling prices.The FSA definition highlights one of the dangers of penny shares: in order to make a profit on them, you need a significant rise in share price just to cover the wide spread. There is no evidence that penny shares as a class have any more potential to appreciate in price than higher-priced shares. The reason is simple: Price in itself is not a measure of value. It only becomes a measure of value in relation to other factors, e.g. price-to-earnings or price-to-assets.Novice investors often make the mistake of equating low share price with value. That"s a fundamental error. A share costing 10 can easily be better value than one costing 10p, if the Net Asset Value per share of the two companies is 12 and 5p respectively. What matters is the size of the "cake" to which the shares relate, and the number of shares in issue.

Penny shares


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Penny shares - Literally, any share costing less than 100p, but in a recent paper on the subject, the Financial Services Authority designated penny shares as shares which have limited liquidity - in other words, that are hard to buy and sell in quantity without moving the price. Specifically, the FSA singled out those with a spread of 10% or more between buying and selling prices.The FSA definition highlights one of the dangers of penny shares: in order to make a profit on them, you need a significant rise in share price just to cover the wide spread. There is no evidence that penny shares as a class have any more potential to appreciate in price than higher-priced shares. The reason is simple: Price in itself is not a measure of value. It only becomes a measure of value in relation to other factors, e.g. price-to-earnings or price-to-assets.Novice investors often make the mistake of equating low share price with value. That"s a fundamental error. A share costing 10 can easily be better value than one costing 10p, if the Net Asset Value per share of the two companies is 12 and 5p respectively. What matters is the size of the "cake" to which the shares relate, and the number of shares in issue.


Penny shares : literally, any share costing less than 100p, but in a recent paper on the subject, the financial services authority designated penny shares as shares which have limited liquidity - in other words, that are hard to buy and sell in quantity without moving the price. specifically, the fsa singled out those with a spread of 10% or more between buying and selling prices.the fsa definition highlights one of the dangers of penny shares: in order to make a profit on them, you need a significant rise in share price just to cover the wide spread. there is no evidence that penny shares as a class have any more potential to appreciate in price than higher-priced shares. the reason is simple: price in itself is not a measure of value. it only becomes a measure of value in relation to other factors, e.g. price-to-earnings or price-to-assets.novice investors often make the mistake of equating low share price with value. that"s a fundamental error. a share costing 10 can easily be better value than one costing 10p, if the net asset value per share of the two companies is 12 and 5p respectively. what matters is the size of the "cake" to which the shares relate, and the number of shares in issue.