How to Calculate Penny Profit

Penny stocks are shares of publicaly traded companies that have a value of $5 (USD) or less. Penny stocks do not trade on the larger market boards, but rather through the "Over The Counter" or "OTC" market. Calculating the profit from the sale of any stock transaction requires you to know the charges, such as commissions or account fees, that may be associated with your trade. These amounts can be obtained from your broker or through the client-service department of a discount broker.

Step 1

Decide how many stocks you would like to buy. Stocks generally trade in what is known as "board lots," which are groups of 100. Trading in an amount other than a board lot may result in extra fees. For the sake of this article, we will say you are buying 100 shares at $1 per share.

Step 2

Calculate your purchase price. Buying 100 shares at $1 per share is a cost of $100. To this price you need to add the broker commission for the purchase. Commissions vary from broker to broker, and they also change depending on whether the trade is completed by yourself or is assisted by a broker. For this example we will use a $15 commission or 15 cents a share. Thus, your total cost for the transaction is $115. Your new share price is 115/100=$1.15, reflecting the cost of the shares and commission.

Step 3

Set a sale price. Since your purchase cost you 15 cents per share, the cost will be the same when you sell. Therefore, you will need to sell at least $1.31 to earn a small profit.

Tip

While you cannot reduce the commission, you can reduce the amount per share by buying more shares. For example, $15 spread over 200 shares is less than it would be if it's spread over 100 shares. In doing this, your stock does not have to appreciate more in value to make the same profit. Check with your broker to see if there are any other charges based on the size of the trade you make.

references & resources