What are penny stocks?
Penny stocks or penny shares are a common stock that trade for less than £1 on UK stock exchanges or less than $5 on US stock exchanges. The low share price means the stock is likely to be a highly speculative investment.
Although the definition of a penny stock is a stock that is valued under £1 or $5 in the UK and US respectively, they have been expanded to cover stocks valued over these guideline prices. But generally, penny stocks have low share prices. They are usually characterised by very high volatility and are seen as higher-risk stocks, with the possibility of significant growth.
The appeal of trading penny stocks and penny shares in the UK is easy to see. If you have £1,000 to invest, you can get a considerably larger share percentage in a smaller company whose shares are trading for a few pence, rather than buying blue-chip shares that may cost much more for an extremely small percentage of ownership. And of course, if your penny share one day goes on to join the blue-chips, you could end up making large returns with the right trading strategy.