Basic Information about Pink Sheets Stocks

Pink Sheets is an electronic quotation system for many Over-the-Counter (OTC) securities. The name of the system was derived from the color of the paper where the quotes were originally printed on. Nowadays, Pink Sheets publishes quotations on the Internet. Most of the listings on Pink Sheets are penny stocks.

Securities that are less than $5 in value are called penny stocks. Most of the companies listed in the Pink Sheets are those that cannot meet the requirements of other exchanges like NYSE and NASDAQ. Since the Pink Sheets has no listing requirements, companies opt for this kind of system in order to trade penny stocks. Companies with no financial histories can also be listed on the Pink Sheets.

Although the Pink Sheets is not a registered stock exchange, it can list companies that will otherwise be unable to raise capital through stock offerings. It is not regulated by the Securities and Exchange Commission (SEC). The Pink Sheets is only accessible by brokers who are licensed by the National Association of Security Dealers (NASD). The brokers are required to follow the regulations set by the NASD while the companies are required to follow the Federal and State security laws.

The stocks listed in the Pink Sheets carry more risks than the stocks which are listed on regulated exchanges like AMEX. A lack of financial data usually indicates that a company may be on the effort of preventing bankruptcy or on the attempt of staying afloat. Some companies just use the Pink Sheets as an intermediate to raise capital while still in the process of becoming listed on regular exchanges.

In order to get listed in the Pink Sheets, companies need to hire broker dealers that will quote the stocks. The only requirement is that the broker has to be a member of the National Association of Securities Dealers (NASD). Once they are listed, the companies remain in the Pink Sheets list as long as the stocks are quoted. It is also possible for a stock that no longer exists to stay quoted in the Pink Sheets.

The low cost is the main advantage of buying Pink Sheets securities. Investors who wish to get in on a new company from the beginning are able to pick up stocks for literally pennies. In the event that the company does well and grows, the small initial investment will then pay large dividends.

The main advantage of buying Pink Sheets securities is their low cost. Investors who hope to get in on a new company right at the beginning can pick up stock for literally pennies. In the event that the company does well and grows the small initial investment will pay large dividends.

There is also a very real risk that the company will simply vanish. It will just leave the valueless stock issues behind so investors who are interested in penny stocks listed on the Pink Sheets should be prepared to lose all. Because of that reason, Pink Sheets investments have to represent only a small portion of an overall investment portfolio.

The lack of liquidity in the Pink Sheets listings is another risk that investors need to deal with. Because the volume is generally low and the search for stock buyers is actually difficult in Pink Sheets, a lot of sellers tend to settle for even lower prices just to unload their shares.