A Look at Pink Sheet and OTCBB stocks otherwise known as penny stocks

 

Micro cap stocks can be highly risky and are much hard to predict then their larger counterparts

Stocks that trade on either the Pink Sheets or OTCBB are usually priced under $1 and have market caps of under $5 million. Of course there are many exceptions and some penny stocks trade valuations of several $100 million.

What is the OTCBB?

The OTC Bulletin Board (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. An OTC equity security generally is any equity that is not listed or traded on NASDAQ or a national securities exchange. OTCBB securities include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts and Direct Participation Programs

What is PinkSheets?

The Pink Sheets s a centralized quotation service that collects and publishes market maker quotes for OTC securities in real time. Companies that trade on the Pink Sheet exchange do not have to report to the SEC or any other regulatory body. The Pink Sheet exchange does not list bid and ask prices of securities.

The primary difference between a Pink Sheet Stock and a fully reporting OTCBB stock is just that. OTCBB is fully reporting and must file both quarterly and annual reports with the SEC such as the 10Q and the 10K however these markets are highly unregulated and there are no listing standards such as you find on the NASDAQ or NYSE.

Many stocks that trade on these smaller exchanges are Companies that did trade on a larger exchange but could no longer maintain that position. Others are simply small companies looking to fund growth through the capital markets. This has become more and more difficult due to the massive short selling and naked short selling that is so common on these markets.  As well these stocks can become completely illiquid very quickly leaving investors with no way to sell their position.

Penny Stocks do offer investors an opportunity to make many multiples on their investment in a very short time span. The trick is to get in early and buy before the crowd discovers the stock. GMCR is one example of a stock that was under $1 and went to over $100 on the NASDAQ. TZOOO is another one however these are the rare exceptions. The majority of these stocks never go to a higher exchange and go down most of the time losing money for investors.

To conclude I would say for the beginning investor it is better to trade stocks listed on a higher exchange such as the NASDAQ. These stocks are easier to predict much more liquid and provide much more information to the public. 

 

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