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Boredmum's Blog
What’s a penny worth?
Mon, 22nd Feb 2010 - Author: BoredmumSo, in real terms what is a penny worth?
No, I haven’t suddenly aged and am going to tell you about all the things you could buy for a penny ‘in my day’. This isn’t a Blog about inflation but a Blog about what a penny is actually worth in real terms to your shares.
Take, for instance, Urals Energy (TIDM code: UEN). If you were to purchase 20,000 shares at 10p (a cost of £2,000) and have a target price of 16p, you should hopefully make a nice profit of £1,200. Not bad...if it ever gets there.
You could sit on the sidelines and wait to see if it ever reaches your target price. Alternatively, with UEN being such a volatile share (Will they receive funding? Will they not?) - one minute the share price is on the floor at around 5p, only to shoot up to 9p, to head back down to 6p and up to 10p and back down to 7p (yes this can happen in a day or two as it is so volatile), it is time to look at what a penny is worth.
In this instance, a penny is worth £200 - minus dealing costs. If you are going to trade a stock and not just invest, it is imperative that you know exactly where your profits are.
So, a penny is worth £200, 0.5p is worth £100 and 0.25p £50. If you want to get in and out and trade it to your advantage, make sure you know this.
If you are lucky enough to get in at 6.5p and you sell at 8p, you’ve made £300 minus costs. I use this as an example because in the real world you are never lucky enough to buy at the bottom and sell at the top.
I have a friend who is playing this like a dream. I know that anytime I am doing a day-trade (which is rare at the minute), I tend to write in front of me a breakdown of what every point (be it a penny, 10p or 0.25p) means to me in terms of sell price. I find this so much easier to react quickly to.
So if you are trading shares, please know ‘what a penny is worth’.
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"Thanks Humblepie, seems to have stagnated around the 6-7p range past couple of days. Be interesting to see what happens when finance news comes and be interesting to see in what form that finance will take."
- boredmum
"You chose a good company to proove a point and you did so quite well."
- Humblepie
"Boredmum - look after the pennies and the poiunds will look after themselves.. Never a truer word.."
- Jonnyfro
"Jonnyfro, totally agree that any profit is better than a loss. Came out of a trade myself today @0.47p and they had taken it to market @0.57p. Wasn't fussed as I still got out in profit. I need to be diciplined more often."
- boredmum
"Great blog again boredmum! Lets just say I learnt my lesson from suspension and have clearly spend far too much time trading rather than my day time job!! Totally agree about knowing entry and exit points, knowing how much each point is worth and staying disciplined.. Any profit is better than any loss.."
- Jonnyfro
"Herring - I'm afraid that greed still lets me down many times, it's not till a share goes back down and you didn't take advantage that you realise you were being too greedy. I tend to have such high expectations most times. Yes, you never lose in taking a profit."
- boredmum
"Hi NKOTB, I like the idea of a spreadsheet. I may just do that at the weekend if I have time. I usually hold about 20 stocks at any one time but usually just trade 1 or 2 but I do like your idea!"
- boredmum
"Boredmum + NKOTB,I'm glad to see i'm not the only nutbag who watches for the penny rises! I run both my cfd account and my high risk AIM shares this way. It seems an easy way to visualise things. I agree with NKOTB about watching trends for an exit point. The only problem i have is greed, i should pay more heed to the fact you never lose money when you've taken a profit!"
- Herring
"PS...I should havae added....that watching the trend.....helpos decision making process as to whether to stick it out to targets or pull the plug for maximum gain.....obvious....but I thought I should mention it....the obvious is sometimes overlooked."
- NKOTB
"Mum...I do the same thing.....but on a laptop that actually works ( I know someone who is trying to sell a pink one) I set up a simple spreadsheet....number of shares bought * sp....+ 0.5% stamp.....+ traders comission....gives me gross cost. Next set of cells gives me no of shares * bid price...gross value...less comission...net profit/loss. At any given time I can alter the BP...calculates my gain/loss...lets me know my break even point....tells me my target BP for the profit I want to make......Really simple sheet...but saves a lot of headaches...and if you have a deal running in K blocks of shares....the part of a penny counts bigtime after the break even point. We are on the same wavelength."
- NKOTB