Penny Stocks, Pink Sheets, Or Micro Caps What’s the Difference?
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.
One way to educate yourself about the true definition of these terms is to use word association. Think of an aspect of the term and come up with a commonality with the actual name.
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.
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).
You may have been told to steer clear of pink sheet stocks because they often hold the most risk. Maintained by Pink OTC Markets Inc., some of them dont deserve their bad reputation.
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.
Why is it errant to describe the bulletin board system as the over-the-counter market? Because its not the only one. The pink sheet market is also an OTC market, and technically speaking, so is the NASDAQ system.
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 judge a bulletin board stock by its cover. Dig a little deeper because some can be stronger and more productive than exchange-listed stocks.
When it comes to determining is a company is considered a micro cap, share price doesnt matter, but it usually has a market cap of $250 million or lessgive or take a few million.
A micro cap status also has nothing to do with where or how a stock trades. The New York Stock Exchanges minimum market cap requirement is only $25 million, so qualifying for an NYSE listing isnt necessarily a sign of great size or strength.
In A Nutshell
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.
Popularity: unranked [?]
Share to the world
