ShmoopTube

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Finance a la shmoop what is a penny stock? well in England did it be a

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farthing stock in Japan yen stock in Somalia put up your hands and give me

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your stock stock all right well what do they all have in common except maybe the

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Somalian one well their stocks that trade for an extremely low value or [Penny stocks definition appear]

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amount of money per share and not necessarily just a penny could be a dime

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or 27 pennies but very small amounts and most will define a penny stock as

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anything trading under $1 a share why well because then it's value can be [Pennies falling]

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described in terms of pennies and because it's living in the delisting red

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zone where most exchanges will simply stop trading in the stock unless the

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company does a meaningful reverse split ie where they go from 200 million shares

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trading at a buck each to having say 50 million shares out there trading at 4

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bucks each right the total value the company didn't

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change just the number of shares went down by 4x and the value went up by 4x

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right well one big element of penny stocks is the cost of trading them and [Man discussing penny stocks]

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you see this issue brilliantly illustrated by Leo in the wolf of Wall

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Street... but if you're paying 4 cents a share Commission

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to buy a share of IBM which trades for like a 150 bucks in change of

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share and those four cents are a rounding error but if you're a retail

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customer paying five cents a share Commission for a 30 cent stock well your

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commission is enormous like some 20 ish percent of the total value spend five

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grand buying grappling hooks.com and a thousand bucks of that dough goes into

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the pocket of Leo or some other bucket shop player selling you those shares

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while penny stocks may seem cheap just because they're cheap per share and if

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you believe this kind of math we have this really amazing bridge we'd love to

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sell you right here...[Bridge explodes and tumbles]

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