Knowing How Penny Stocks, Pink Sheets and Micro Caps Differ Can Be A Profitable Journey
Its easy to use the term penny stock interchangeably with pink sheet. The same goes for bulletin board and micro cap. Unfortunately, investors are doing themselves a great disservice by mentally lumping all four distinct descriptions into one category. More specifically, investors may be overlooking tremendous opportunities by not acknowledging their differences.
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.
Penny Stocks " As a general rule of thumb, any stock priced under $5.00 is considered a penny stock, though many traders dont consider a stock to be a penny stock unless its priced under $1.00. Either is acceptable, though one definition clearly expands the number of stocks that could qualify as penny stocks.
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.
Often a stocks price sinks because a temporary situation has developed. It may even have met the same requirements as higher priced stocks at some point. A stock with this type of price movement could be a great investment opportunity when it trades 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.
Where a foreign company chooses to list their stock is not a gauge of credibility. For some technical or logistical reason, the stock cannot be listed with one of the exchanges or the bulletin board system.
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.
This may come as a surprise, but the bulletin board system is not the only over-the-counter game in town. Both pink sheet and NASDAQ markets are 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.
Bottom Line
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.
Your most educational website for information regarding penny stocks to top stock picks is www.smallcapnetwork.com. We offer timely and meaningful market commentary and trading ideas. Sign up for the free e-newsletter today. - 23204
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.
Penny Stocks " As a general rule of thumb, any stock priced under $5.00 is considered a penny stock, though many traders dont consider a stock to be a penny stock unless its priced under $1.00. Either is acceptable, though one definition clearly expands the number of stocks that could qualify as penny stocks.
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.
Often a stocks price sinks because a temporary situation has developed. It may even have met the same requirements as higher priced stocks at some point. A stock with this type of price movement could be a great investment opportunity when it trades 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.
Where a foreign company chooses to list their stock is not a gauge of credibility. For some technical or logistical reason, the stock cannot be listed with one of the exchanges or the bulletin board system.
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.
This may come as a surprise, but the bulletin board system is not the only over-the-counter game in town. Both pink sheet and NASDAQ markets are 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.
Bottom Line
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.
Your most educational website for information regarding penny stocks to top stock picks is www.smallcapnetwork.com. We offer timely and meaningful market commentary and trading ideas. Sign up for the free e-newsletter today. - 23204
About the Author:
James Brumley is an expert in the small stock arena covering penny stocks and small cap stocks for over 10 years now. Investing in penny stocks can be very risky and it is recommended you gain access to the limited amount of information available to investors. The Small Cap Network's free newsletter is one source sure to provide valuable insight and ideas.
posted by X - Men @ 3:50 AM
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