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Should You Invest In Penny Shares?

Summary: According to the SEC a penny share (or penny stock) is a low priced, speculative security from a very small company.



This description of a penny stock is regardless of market capitalization or whether the company trades on a securitized exchange like NYSE or NASDAQ or an over the counter listing service.

In the UK, a penny share is a listed company that has a market value of less than £1 million and a share price of less than £1 per share, with a bid / offer spread of more than 10%. Note that! A spread of 10% in a FTSE 100 company would be scandalous - it would similar to theft! This shows just how rarely many of these companies will be traded and therefore how illiquid they can be.

Very small companies - including those that qualify as penny shares - can be a very high risk investment proposition.

Watch These Free Videos And Learn How To Trade Stocks

Of course, it goes without saying that small companies that are succesful will become larger companies. It is clearly easier for a company with a few offices, shops or branches to double in size (and profits!) than would be the case for a global titan. For very large companies, annual growth rates of perhaps 10% are often considered to be high. It is this potential for fast growth that excites and tempts investors to small companies.

But these investments face many risks - including some that investments in larger firms may not face - which means that they often ought to be considered an investment for those with considerable experience.

To read more about the stock market, please follow these links:

The Stock Market For Beginners - What Is Your Investment Focus?

The Stock Market For Beginners - What Is Your Investment Style?

The Stock Market For Beginners - How Much Spare Time Do You Have?

The Basics Of Stock Market Investing

Investing In Stock Online

Types Of Penny Shares