What are Penny Shares?

A 'Penny Share' is a loose term used to describe shares which have a speculative appeal because of their low value. There is no official rule to define when a stock becomes a Penny Share and different observers may use different criteria.

Most brokers will stipulate that a penny share must have a value below some upper limit - which can be anything from 50p up to 3. Others may specify a ceiling on the Market Capitalisation of the company.

In terms of the shares listed on this website we use a combination of the above criteria to decide which companies to feature and so not to miss any shares with potential. We say that a penny share must be one with a share price of less than 1 OR a market cap. of less than 100 million.

The essence of these companies are that they will more than likely only have a small amount of net tangible assets and a short operating history. This is in contrast to shares in large blue-chip companies which will have the stability of a large amount of assets and a long trading history to fall back on. This is what makes penny shares such a volatile proposition and yet in turn makes them such exciting prospects.

Next: Types of Penny Shares