Pink Sheets Penny Stocks – What are Pink Sheets Stocks?

Pink Sheets Stocks

The pink sheets over the counter bulletin board market, ( OTC , OTCBB ) allows companies to list their stock and make a market.  Most traders refer to OTC or Pink Sheets stocks as penny stocks.  However, this is not accurate at all.  Companies trading in the Pink Sheets OTC market’s can range from $0.0001 to hundreds of dollars per share.

What are Pinks Sheets Stocks?

If you know anything about penny stocks, then there’s no doubt that you’ve have heard of Pink Sheets stocks. While it is possible that penny stocks can be traded on the regular stock exchanges, the ones that are unable to meet the requirements of larger exchanges such as the NASDAQ, NYSE or AMEX, are typically listed in the Pink Sheets OTC markets.  These stocks are usually VERY risky to trade or invest in. 

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Pink Quote, otherwise known as the Pink Sheets, is an electronic quotation system for a number of over the counter (OTC) securities.  Pink OTC Markets operate Pink Sheets by providing Electronic Inter-dealer Quotation and Trading Systems, an Internet enabled application that permits the community of broker-dealers to view and update quotes in real time. Market Makers and other brokers can use Pink Sheets to publish their bid and ask quotation prices.

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.