It is important to remember that Pink Sheets is not a stock exchange. Companies do not need to fulfill any requirements (e.g. filing financial statements with the SEC), to be quoted in the Pink Sheets.  This allows any company, even a company with no financial history, to be listed.  Many of these companies do not file audited financial statements or periodic reports with the SEC which makes it very difficult for investors to find reliable, unbiased information about those companies.

Due to this, the SEC views companies listed on Pink Sheets as "among the most risky investments”, as there is generally more of a risk to investors than stocks that are on the larger exchanges such as the NYSE.  Most Pink Sheet stocks are not very liquid, and as such, bid/ask spreads are often quite wide. With a lack of liquidity, the volume is usually very low and it can be very difficult to find a buyer for the stock. The seller may have to settle for a price that is much lower than initially anticipated in order to be able to unload his or her shares. In other instances, there are big volumes do to the pink sheets stock being only worth $0.0002.

Another risk to the investor is that a company may simply vanish, leaving worthless stock issues in its wake. It’s also easy for a company facing bankruptcy to issue stock in a desperate attempt to remain afloat. This leads investors to place their trust in a highly unstable company.

Some companies, however, do use the Pink Sheets as a stepping stone in becoming listed on the regular exchanges and the Pink Sheets give them an opportunity to raise capital.

It is advised that potential investors heavily research the companies in which they plan to invest.   Again, pink sheets stocks are very risky and can be subject to large price swings.