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Understanding the prices of penny stocks

by , 17 September 2015

If you want to invest in penny stocks, you need to understand how the pricing of shares works.

There isn't just one price for a penny stock, or any other share on the stock market, there are two.

So what is the difference between these two prices? And what difference does it make to you?

Read on to find out more…


The bid offer spread of penny stocks


If you’re new to investing on the stock market, you’ll come across your fair share of terminology that may seem a bit foreign at first. But once you get to grips with these terms, you’ll soon realise that it’s very straightforward.

One example of this is when you deal with your stock broker. If you want to buy penny stocks, or other shares listed on the stock market, your broker will quote you the share’s bid offer spread.

This consists of two prices for one share. One is higher than the other one.

One price is the price at which you can buy the share at. The other is the price at which you can sell the share at.

The higher price of the two is the price you can buy a share at. This is the offer price. The lower price of the two is the price you can sell a share at.

The difference between these two prices is the spread.

You’ll find that with many penny stocks the spread will be bigger than that of the biggest shares on the stock market. This is because there is less volume trading on penny stocks.


An example of a penny stock’s bid offer spread


Let’s say that company Penny Rocket is a penny stock you want to buy. When you speak with your stock broker, he quotes you a bid offer spread of 300c to 340c.

This means you can sell shares in Penny Rocket at 340c and buy shares in Penny Rocket at 300c. The spread is 40c.

So there you have it. Understanding the prices of penny stocks.

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Understanding the prices of penny stocks
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