The terms penny stock and pink sheet are like night and day as are bulletin board and micro cap. Unknowing investors often lump them all into one category and get into trouble or miss out on opportunities.
Though its likely you know the true definition of at least a couple of these terms, its worth spending a couple of minutes planting a simple ” and unique ” explanation in the back of your mind for each one. Doing so may mean the difference between making a profitable investment or not at some point in the future.
Most of the time, traders dont consider a stock that trades over $1 a penny stock. Then there are others who define any stock less than $5 as one. There arent any ramifications for using either benchmark.
The reason a $5 price level is often considered the standard is because many brokerages wont allow a stock under that price to be shorted or bought on margin. Then there are brokerages without any price limit for shorting stocks.
Many low-priced exchange-listed stocks are cheap due to a temporary situation that once cleared up, will send the stock higher. The company size or its exchange do not determine its status as a penny stock”which can be a pink sheet or bulletin board stock (see below).
One of the riskiest types of stocks to invest in is a pink sheet stock, traded on an over-the-counter quotation system. Before you completely eliminate them from your investment world, its worth doing a little homework because this stigma isnt always deserved.
The size of a company has no bearing on whether a foreign stock is listed in the U.S. market. Many times, they just cant do it for logistical or technical reasons. Therefore, dont use this as a barometer for credibility.
On that note, however, the potential downside of pink sheet stocks appears there are essentially no reporting/disclosure requirements for companies with stocks listed as pink sheet equities. In other words, you may not be able to view any audited accounting statements for these stocks. Many pink sheet companies can and do disclose every single financial statement they produce, however. For that reason, these stocks should be considered on a case-by-case basis.
On the other hand, if a stock trades on the OTC market, or as an OTCBB stock, you can be assured that these companies have met SEC requirements.
The bulletin board system does not rule the over-the-counter market. The pink sheet and on a technical basis, the NASDAQ, are also OTC markets.
Share price doesnt play a direct role in determining if an equity is listed as a bulletin board stock or an exchange-listed stock either. However, the exchanges (or the NASDAQ) have certain market cap requirements that may not be yet met by a bulletin board company.
Dont just assume that all bulletin board stocks lack the stability of exchange-listed stocks. You might find some hidden gems that are stronger and more productive.
The reason there is plenty of micro cap stocks with share prices over $5 are because price isnt considered when making that determination. Micro caps are simply stocks with market caps of $250 million or less.
Micro Caps can also trade on any exchange, so its status isnt based on whether its listed on the New York Stock Exchange. Its minimum requirement is only $25 million.
A Quadruple Summary
As you can see, penny stocks, pink sheets, bulletin boards and micro caps all serve different purposes and play the trading game uniquely. In this instance, semantics do matter. Becoming knowledgeable about specific definitions will go a long way in making profitable investments.
Theres only one website you need to bookmark for all your trading needs: www.smallcapnetwork.com. We find the information thats key to uncovering the best of the best stocks. Sign up for the free e-newsletter today.
