Penny Stocks, Pink Sheets, Or Micro Caps What's the Difference?
Its extremely important that investors know how to distinguish between terms like pink sheet and penny stock, bulletin board and micro cap. The differences can mean making a winning or losing trade.
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.
Though its slightly arbitrary, the $5.00 price level may have become the standard simply because thats the price under which many brokerage firms will not short a stock, or allow it to be margined. However, some brokerage firms have no price limit at all when it comes to shorting a stock. So, penny stocks can be sold short.
Many low-priced exchange-listed stocks are cheap due to a temporary situation that once cleared up, will send the stock higher. The company size or its exchange do not determine its status as a penny stock"which can be a pink sheet or bulletin board stock (see below).
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.
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.
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.
However, if a stock isnt listed on the NYSE or AMEX but rather the OTC market or as an OTCBB stock, it still means it has met SEC reporting/disclosure requirements and is considered to be of fully reporting status.
Why is it errant to describe the bulletin board system as the over-the-counter market? Because its not the only one. The pink sheet market is also an OTC market, and technically speaking, so is the NASDAQ system.
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.
A Quadruple Summary
By not knowing the key and unique ingredients of penny stocks, bulletin boards, pink sheets and micro caps, you might overlook or steer clear of an investment that might be a benefit to your portfolio.
Theres only one website you need to bookmark for all your trading needs: www.smallcapnetwork.com. We find the information thats key to uncovering the best of the best stocks. Sign up for the free e-newsletter today. - 23222
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.
Though its slightly arbitrary, the $5.00 price level may have become the standard simply because thats the price under which many brokerage firms will not short a stock, or allow it to be margined. However, some brokerage firms have no price limit at all when it comes to shorting a stock. So, penny stocks can be sold short.
Many low-priced exchange-listed stocks are cheap due to a temporary situation that once cleared up, will send the stock higher. The company size or its exchange do not determine its status as a penny stock"which can be a pink sheet or bulletin board stock (see below).
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.
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.
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.
However, if a stock isnt listed on the NYSE or AMEX but rather the OTC market or as an OTCBB stock, it still means it has met SEC reporting/disclosure requirements and is considered to be of fully reporting status.
Why is it errant to describe the bulletin board system as the over-the-counter market? Because its not the only one. The pink sheet market is also an OTC market, and technically speaking, so is the NASDAQ system.
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.
A Quadruple Summary
By not knowing the key and unique ingredients of penny stocks, bulletin boards, pink sheets and micro caps, you might overlook or steer clear of an investment that might be a benefit to your portfolio.
Theres only one website you need to bookmark for all your trading needs: www.smallcapnetwork.com. We find the information thats key to uncovering the best of the best stocks. 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. 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 @ 6:46 AM
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