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What would be a reasonable minimum amount for an initial foray into buying shares? Are the 'penny' shares worth having?...
Question
What would be a reasonable minimum amount for an initial foray into buying shares? Are the 'penny' shares worth having? - Posted by L Pritchard
Answer
ANSWER 13th February 2010
Hi
This is not an easy question, it depends on a lot of things. How much can you afford to lose? What percentage of your outlay would go in costs? Could you make a worthwhile profit? Could you get any diversification? Etc.
Most telephone brokers probably would not take on new accounts unless you were investing maybe minimum £10000 or trading £2-3k regularly. On-line there is no minimum but I suppose you want to work out how much you could reasonably expect to make with various amounts. I would suggest a pot of at least £1000.
The alternative is spread betting where you can 'trade' as little as £1 or £2 a point. That is the equivalent of 100 or 200 shares. If you multiply that by the share price that will give you your total exposure.Â
Like any investment penny shares may or may not be worth buying. Most beginners look to penny shares because they think that with a small investment, say £100 you can buy lots of shares (like 10000 @ 1p). Rather than, for example 10 shares at £10 each. But what is the difference? The penny share may quadruple giving you a profit of £300. But is it more likely they will halve or disappear completely? The odds are most likely against you.
With the £10 share it is very unlikely to quadruple but it could easily rise 10-20%, pay you a small dividend and be very unlikely to go bust.
The other point about penny shares is the 'spread'. It is not uncommon to see a price quoted as 1p-2p. This all looks fairly innocuous. But look closer: if you buy at 2p per share what is your immediate paper loss? Your shares are worth, or could be sold at 1p. That is 1p loss or 50% loss.
Why not join our forum, there are other beginners there and I will always answer or comment on new posts.
Hi
This is not an easy question, it depends on a lot of things. How much can you afford to lose? What percentage of your outlay would go in costs? Could you make a worthwhile profit? Could you get any diversification? Etc.
Most telephone brokers probably would not take on new accounts unless you were investing maybe minimum £10000 or trading £2-3k regularly. On-line there is no minimum but I suppose you want to work out how much you could reasonably expect to make with various amounts. I would suggest a pot of at least £1000.
The alternative is spread betting where you can 'trade' as little as £1 or £2 a point. That is the equivalent of 100 or 200 shares. If you multiply that by the share price that will give you your total exposure.Â
Like any investment penny shares may or may not be worth buying. Most beginners look to penny shares because they think that with a small investment, say £100 you can buy lots of shares (like 10000 @ 1p). Rather than, for example 10 shares at £10 each. But what is the difference? The penny share may quadruple giving you a profit of £300. But is it more likely they will halve or disappear completely? The odds are most likely against you.
With the £10 share it is very unlikely to quadruple but it could easily rise 10-20%, pay you a small dividend and be very unlikely to go bust.
The other point about penny shares is the 'spread'. It is not uncommon to see a price quoted as 1p-2p. This all looks fairly innocuous. But look closer: if you buy at 2p per share what is your immediate paper loss? Your shares are worth, or could be sold at 1p. That is 1p loss or 50% loss.
Why not join our forum, there are other beginners there and I will always answer or comment on new posts.
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