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.
Penny shares