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Finance: What is a Penny Stock? 0 Views


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Description:

A penny stock is a stock that trades for an extremely low value or amount of money per share.

Language:
English Language

Transcript

00:00

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

00:08

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

00:14

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

00:18

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

00:24

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

00:29

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

00:35

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

00:39

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

00:44

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

00:49

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

00:54

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

00:58

bucks each right the total value the company didn't

01:01

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

01:05

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

01:10

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

01:15

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

01:19

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

01:23

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

01:27

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

01:31

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

01:37

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

01:42

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

01:46

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

01:51

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

01:54

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

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