NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

What are penny stocks?

What are penny stocks?
Image source: Getty Images.


All British stocks have to be made up of pennies, right? They have a monetary value, after all. 

Even the London Stock Exchange Group‘s share price – one of the highest in the FTSE 100 according to, well, the London Stock Exchange – is made up of pennies (just under eight thousand of them at the time of writing).

But this isn’t classified as a penny stock (or penny share).

What exactly are penny stocks?

The difference between penny stocks and penny shares comes down to semantics. And perhaps geography!

But essentially, if a listed company’s shares trade for less than US$5 then it’s regarded as a penny stock. And over on this side of the pond, if an equity’s share price sits under £1, it can be deemed a penny share. Don’t worry about the ever-changing value of currency – this definition is well set!

As I write, the high-street chain and household name Lloyds Banking Group‘s shares are valued at around 40p each. So, despite having a market cap of almost £30 billion, it falls into the category of a penny share!

(And since ‘stocks’ and ‘shares’ tend to be interchangeable in today’s investing language, you’re unlikely to get picked up on if you call Lloyds a penny stock.)

Don’t let these 3 common investing mistakes ruin your chance for early retirement

If you’re after financial independence or early retirement, investing in the stock market could help you get there sooner… but only if you avoid these all‑too‑common mistakes. These beginner’s errors can cause you to miss out on the long-term wealth-building power that shares hold.

To help you side-step these pitfalls, and move forward on your path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter your email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Can you get rich from penny shares?

Possibly. But you can also ‘get poor’, too.

There’s a stigma around the term, and this comes from the fact that they are frequently traded. (I’ll repeat: traded, rather than invested in.)

Because many can be bought in large quantities due to their seemingly cheap individual price, they are seen as more accessible to day-traders (as opposed to shares in Amazon, for example, which are currently available for around £2,200 each!). 

This causes share-price volatility, and often wild swings in value on a day-to-day basis. So a beginner might be ‘up’ on their investment one day, and ‘down’ the next.

A lot of the time, shareholders of penny stocks are at the mercy of other investors’ actions – rather than the market largely reacting to the company’s prospects.

That’s not to say all penny shares will turn out to be bad investments, of course. Looking at ASOS, its share began life with a price of a little under 25p each. These days, they’re worth over £50 per share!

If you’re new to investing, then do take a look at our list of top share-trading accounts for beginners. And if you’re more experienced, as well as prone to buying and selling shares more regularly, then you might be interested in our top picks for some of the best low-cost, cheap share-dealing accounts around.

Whatever you do, though, I encourage you to invest Foolishly, not foolishly!

Join our mailing list

If you’re looking for more ways to make your money work for you, why not sign up for MyWalletHero’s email newsletter? You’ll receive our team’s top money-saving tips, lifestyle hacks and handy personal finance ‘must-knows’ – delivered straight to your inbox…

Just enter your email address below to sign up now:

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.


Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.