What’s a penny worth?

Monday, 22nd February 2010 21:20 - by Boredmum

So, 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’.