There is no definite meaning of penny shares; it can only be recognized its description and designation. As the name implies, a penny share does have a link with shares, it is a category of shares that have a specific low value. How low must the value of a share be before it can be described as a penny share? Some have attributed different values, but most classify any share that is lower than a dollar as a penny share. What is the relevance of this type of share? Does trading in penny shares offer more advantage than trading the blue chip shares?
Financial analyst have provided different sensible reasons why people should invest in penny shares and investors are already rushing to embrace the possibility of earning stable income from trading penny shares.
Types of penny shares
New issues share: This category of penny shares falls under the companies that issues penny shares as a young company operating for a short time or have recently become public. The investment importance here is that the share price has a limitless elasticity and as long as the company does well it is set to increase.
- Recovery shares: This involves company that can be regarded as a blue chip company who at one time or another, enjoyed growth signified by increase high share price, but for some reason, the company falls, such a company in the process of re-strategizing for growth will bring down their share price purposely to attract investors.
- Cyclical shares are denoted by fluctuating company share prices in response to the up and down movement of the economy.
- Defensive shares: This type of share is not sensitive to the economic situation. Unlike cyclical shares it maintains a rigid price level no matter the change in economic conditions. This is because some companies sell products that are generally inelastic; meaning change in price does not always lead to an erratic (sometime no change at all) change in consumers demands.
The reason for the study of the types of penny shares is to know and understand the categories of different shares and how it may influence penny share trading. Let’s take a look at recovery shares. This type of share is by far the most promising out of all the different shares because it affords investors opportunity to become a part of a trusted and reliable company, especially if such company crumbled as a result of external economic factors that had nothing to do with brand or company product.
Penny shares prices still possess high elasticity and as such are yet to reach a particular level giving an investor a great earning potential with very little at stake; literally, just pennies.