Why are penny shares different to ordinary shares?

There is more than one way in which a broker may evaluate a Penny Share. The most common view is that a penny share must hold a maximum value of £3 although this can also be much lower than this (although not usually higher). Alternatively, the share could be deemed a Penny Share because it falls below the ceiling on the Market Capitalisation of the company (for example, less than £100 million).

Penny shares are commonly found with new businesses that do not yet have a long track record of trading or have a very small amount of net assets. As they are new, these companies could either fail, remain steady as they are or become resounding successes. While they are still small and new their stocks could rise or fall without much warning based on media coverage for a particular event involving them or a public opinion of them. This is why Penny Shares are also often the most volatile type of shares on the markets and while they hold a reasonable amount of risk they are also hold a vast amount of potential making them very exciting to deal with.

Not every Penny Share is worth investing in, so make sure you are preparing to trade or sell your Penny Shares when the time is right. It’s also important not to buy every Penny Share you can find, some of these will be failures and it’s important to know which ones have the right potential to become successful and reward you with a profit in your shares.

Other share options, such as those from blue chip companies, are not normally as volatile as Penny Shares. These shares are usually quite steady as the companies are long established and have good track records of their trading history. These types of shares will not rise or fall dramatically at the slightest bit of bad or good news as they have a long standing place in the market and we have a good idea of what is happening with them overall. While these shares are more reliable, they are not as exciting as Penny Shares and often do not have the potential for massive profits on their shares.

There are also multiple types of Penny Shares you could invest in and each different type will give you a strong indication on how the share will behave and whether or not it is worth investing in and how risky the shares are over all. Penny shares could also be created by a long standing company suffering a large fall in their shares as they have fallen out of favour or the business has collapsed. This could quickly turn a companies shares into “Penny Shares” and are generally not touched unless the business has a chance of recovery (usually through investment and re-structuring).

So in general Penny Shares are very similar to regular shares except that they are much cheaper to purchase and they can be more volatile in the market. It is often recommended that only experienced individuals should dabble in Penny Shares because of their unpredictability but it is also good for new starters due to the low prices if they have researched the matter properly.