Penny Shares

Information about Investing in Penny Shares

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Glossary

Penny Share related words in simple terms.

AIM: Otherwise known as the Alternative Investment Market, the AIM is one of the stock markets within the United Kingdom that includes penny share companies. The AIM is perhaps the best market to pick up penny shares from newly listed companies, simply because it does not have as stringent protocols regarding listing as the London Stock Exchange (LSE) does.

Blue-chip shares: This is a phrase which refers to shares in companies that are typically stable and are generally long-term rather than short-term investments. People looking for 'safe' investments will tend to buy into blue-chip companies rather than the more riskier investments such as penny shares.

Cyclical shares: A term that describes shares that regularly rise and fall in value. The cycle is usually reliant upon political, environmental or economical factors, but may be effected by season (such as with companies involved in tourism and retail).

Defensive shares: A term that describes shares that do well in bad economical conditions. These shares typically belong to companies that provide necessary goods or services, such as food, water, electricity and gas. As the overall market value falls, these shares can be expected to remain stable or even increase in value.

LSE: Otherwise known as the London Stock Exchange, the LSE is the most respected stock exchange in the United Kingdom. Although it is difficult for new companies to be listed on the LSE (the Exchange has guidelines that prevent listed companies with less than three years public history from being included), the London Stock Exchange is an ideal place to find recovery penny shares.

Market capitalization (market cap): The term 'market capitalization' or 'market cap' is one that many investors use frequently. It refers to the agreed value of the company's equity. Small or young companies tend to have less assets and less value; these are the companies which usually have a low market cap and which subsequently have low share prices. Market cap is one of the factors which determines whether a company's shares can be classified as being penny shares.

Microcap: This is a term which refers to companies with a market cap of less than £100 million. It is interchangeable with the 'small-cap' classification. Microcap and small-cap companies generally have penny share prices.

Off-Ex: Otherwise known as the Off Exchange, the Off-Ex was the old name for the market now known as PLUS (sometimes just Plus). The Off-Ex was somewhat of an unofficial stock market which provided a step-up for small or newly public companies. Small enterprises and experimental industries were amongst the types of companies listed on the Off-Ex.

PLUS: Sometimes known as Plus or Plus Markets, PLUS is the new version of the Off-Ex market. PLUS is the main market of interest for newly public companies or risky enterprises. Many penny share companies are listed on the PLUS market.

Public domain: This is a general term which refers to shares that are available to or owned by the public; in other words, the shares are not owned by the company executives or employees. The London Stock Exchange will only list companies which have at least 25% of their shares in the public domain.

Recovery shares: This is a term which refers to companies whose shares may have once been much higher than they are at present, but which are likely to bounce back to their former heights. There are many reasons that share prices decrease in value - the political climate, changes to legislation, consumer confidence, and the threat of a take-over are just some of the potential causes. Recovery shares are ideal penny share investments, because they have had a proven value much higher than their present state.

Small-cap: Interchangeable with 'microcap', the term 'small-cap' refers to companies with a market capitalization of less than £100 million.