Penny Stocks, Pink Sheets, Or Micro Caps What's the Difference?
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.
Whether you consider a penny stock as one that trades under $1 or one that trades under $5 really doesnt matter. Although the universe of stocks to choose from will definitely expand as the stock price rises.
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.
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.
Some foreign stocks choose to list their equities in the U.S. market, but for technical or logistic reasons cant list their stock with one of the exchanges or the bulletin board system. That doesnt make the investment any less credible though. The size of the company (or market cap) is irrelevant.
One of the biggest downsides to pink sheet stocks is a lack of transparency. These companies arent required to report audited accounting statements, although many do anyway. If the stock youre considering discloses its business, it might be worth a second look.
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.
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.
Some bulletin board stock can be stronger and more productive than many exchange-listed stocks, so dont inherently steer clear of bulletin board names, or necessarily have blind faith in the stability of any exchange-listed stock.
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. - 23196
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.
Whether you consider a penny stock as one that trades under $1 or one that trades under $5 really doesnt matter. Although the universe of stocks to choose from will definitely expand as the stock price rises.
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.
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.
Some foreign stocks choose to list their equities in the U.S. market, but for technical or logistic reasons cant list their stock with one of the exchanges or the bulletin board system. That doesnt make the investment any less credible though. The size of the company (or market cap) is irrelevant.
One of the biggest downsides to pink sheet stocks is a lack of transparency. These companies arent required to report audited accounting statements, although many do anyway. If the stock youre considering discloses its business, it might be worth a second look.
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.
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.
Some bulletin board stock can be stronger and more productive than many exchange-listed stocks, so dont inherently steer clear of bulletin board names, or necessarily have blind faith in the stability of any exchange-listed stock.
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. - 23196
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 @ 6:43 AM
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