Its extremely important that investors know how to distinguish between terms like pink sheet and penny stock, bulletin board and micro cap. The differences can mean making a winning or losing trade.
Even if you know a little bit about each term, its worth the time to memorize the distinctions between each. In trading, the more you know, the better investments you can make.
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.
If you want to short or buy a penny stock on margin, make sure you know whom youre doing business with. Some brokerages will not allow shorting of any stock under $5; others dont place a limit. So, choose wisely.
Its also generally true that penny stocks tend to be a pink sheet or a bulletin board stock (see below), though its imperative to understand that many exchange-listed stocks are also penny stocks. These low-priced exchange-listed stocks have at some point met the same requirements as some of the worlds highest-priced stocks. The low share price may be a temporary situation, not to mention an incredible investment opportunity. The size of the company (market cap) or its exchange has nothing to do with determining whether its a penny stock or not.
Pink Sheet ” A pink sheet stock is an equity that trades on the over-the-counter quotation system maintained by Pink OTC Markets Inc. Though this is generally considered to be the least desirable ” and most dangerous ” market to delve into, the 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.
When it comes to determining if an equity should be listed as a bulletin board stock or an exchange-listed stock, share price doesnt come into play. Specific market caps may be required, however.
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.
Whether youre looking for top stock picks and trading ideas among the penny stock world, bulletin board equities, or micro caps, youll find them at www.smallcapnetwork.com. We explore the information that really matters to find you the best of the best stocks, and to offer highly meaningful market commentary. Sign up for the free e-newsletter today.
