Knowing How Penny Stocks, Pink Sheets and Micro Caps Differ Can Be A Profitable Journey
Its easy to use the term penny stock interchangeably with pink sheet. The same goes for bulletin board and micro cap. Unfortunately, investors are doing themselves a great disservice by mentally lumping all four distinct descriptions into one category. More specifically, investors may be overlooking tremendous opportunities by not acknowledging their differences.
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.
Penny Stocks " As a general rule of thumb, any stock priced under $5.00 is considered a penny stock, though many traders dont consider a stock to be a penny stock unless its priced under $1.00. Either is acceptable, though one definition clearly expands the number of stocks that could qualify as penny stocks.
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.
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.
One of the riskiest types of stocks to invest in is a pink sheet stock, traded on an over-the-counter quotation system. Before you completely eliminate them from your investment world, its worth doing a little homework because this stigma isnt always deserved.
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.
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.
Bulletin board companies dont consider share price when determining if a stock should be listed there, but market cap may be.
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.
Bottom Line
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. - 23222
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.
Penny Stocks " As a general rule of thumb, any stock priced under $5.00 is considered a penny stock, though many traders dont consider a stock to be a penny stock unless its priced under $1.00. Either is acceptable, though one definition clearly expands the number of stocks that could qualify as penny stocks.
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.
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.
One of the riskiest types of stocks to invest in is a pink sheet stock, traded on an over-the-counter quotation system. Before you completely eliminate them from your investment world, its worth doing a little homework because this stigma isnt always deserved.
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.
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.
Bulletin board companies dont consider share price when determining if a stock should be listed there, but market cap may be.
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.
Bottom Line
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. - 23222
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. Investors with an appetite for high risk/reward investment ideas should consider getting his free newsletter publication by visiting www.smallcapnetwork.com and subscribing.
posted by X - Men @ 5:57 AM
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