Pink Sheet Stocks

Pink sheet stocks are stocks that typically trade for under $5 per share. Pink sheet stocks are also known as penny stocks. You probably have heard about people getting rich off of trading pink sheet stocks or penny stocks. Nevertheless, trading pink sheet stocks can be risky due to the volatility and the liquidity of the pink sheet market. However, having said that, trading pink sheet stocks can also be very rewarding investment.

First, let’s see what types of stocks trade on the Pink Sheet market or Over the Counter (OTC) market. Stocks that don’t trade over $1 on the major stock exchanges such as the NYSE or Nasdaq. It is a good idea to avoid trading pink sheet stocks like this. Be patient and wait for the stock to rise. Do not ever attempt to catch a falling knife. You can get hurt with your investment this way.

Pink Sheet stocks are mostly from new start up companies. Each year thousands of companies go public. They need the equity money to expand their business. A lot of these companies will file for an IPO (Initial Public Offering) and many will start trading on the Over the Counter Bulletin Board (OTCBB) as a penny stocks.

Second, trading pink sheet stocks can be risky. However, if you do it properly it can be very rewarding. Here are some guidelines to follow.

You want to trade pink sheet stocks with due diligence. Stocks traded on the Pink Sheet market are not required to file financial statements. This can make doing your research about the company difficult. Most of the time the information provided by the company is unclear and biased. You should anticipate a company to say good things about their company in their press releases.

Stocks traded on the Over the Counter Bulletin Board (OTCBB) file quarterly and annual financial statements. This provides some extent of the company’s financial success. You will find most of these companies fail due to poor management. So try to find a company whose management has a good track record of making money.

You want to trade pink sheet stocks with large volumes. In order to make money, you have to buy and sell sufficient shares to secure your profit. If the daily volume of a stock is too small, it can take couple of days to build up a position worth taking. If the volume is too the stock will be difficult to trade due to the low liquidity.

Never buy a stock on hype. You might end up being the last person to buy the shares while other people have already sold their shares.

Try not to invest too much money on one stock. Remember, pink sheet stocks are very volatile and can go up or down by more than 50% or more in a short time. Let’s say if you invested $10,000 in one stock that stock can potentially drop to $5000 very quickly.

Trading pink sheet stocks can be very profitable. You just have to remember you are taking more risks than stocks that trade on the major stock exchanges. That risk you take can be rewarded with great returns that you cannot obtain with stocks that trade on the major exchanges. Do your research, do not believe the hype, and protect your investment.