Knowing How Penny Stocks, Pink Sheets and Micro Caps Differ Can Be A Profitable Journey
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.
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.
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).
You may have been told to steer clear of pink sheet stocks because they often hold the most risk. Maintained by Pink OTC Markets Inc., some of them dont deserve their bad reputation.
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.
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.
The bulletin board system does not rule the over-the-counter market. The pink sheet and on a technical basis, the NASDAQ, are also OTC markets.
Bulletin board companies dont consider share price when determining if a stock should be listed there, but market cap may be.
Some bulletin board stock can be stronger and more productive than many exchange-listed stocks, so dont inherently steer clear of bulletin board names, or necessarily have blind faith in the stability of any exchange-listed stock.
The reason there is plenty of micro cap stocks with share prices over $5 are because price isnt considered when making that determination. Micro caps are simply stocks with market caps of $250 million or less.
You may think that the companies listed on the New York Stock Exchange are bigger and stronger than all the others, but thats not true. The minimum market cap stands at $25 million, so even a micro cap stock can make the NYSE.
Bottom Line
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.
Your most educational website for information regarding penny stocks to top stock picks is www.smallcapnetwork.com. We offer timely and meaningful market commentary and trading ideas. Sign up for the free e-newsletter today. - 23199
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.
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).
You may have been told to steer clear of pink sheet stocks because they often hold the most risk. Maintained by Pink OTC Markets Inc., some of them dont deserve their bad reputation.
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.
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.
The bulletin board system does not rule the over-the-counter market. The pink sheet and on a technical basis, the NASDAQ, are also OTC markets.
Bulletin board companies dont consider share price when determining if a stock should be listed there, but market cap may be.
Some bulletin board stock can be stronger and more productive than many exchange-listed stocks, so dont inherently steer clear of bulletin board names, or necessarily have blind faith in the stability of any exchange-listed stock.
The reason there is plenty of micro cap stocks with share prices over $5 are because price isnt considered when making that determination. Micro caps are simply stocks with market caps of $250 million or less.
You may think that the companies listed on the New York Stock Exchange are bigger and stronger than all the others, but thats not true. The minimum market cap stands at $25 million, so even a micro cap stock can make the NYSE.
Bottom Line
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.
Your most educational website for information regarding penny stocks to top stock picks is www.smallcapnetwork.com. We offer timely and meaningful market commentary and trading ideas. Sign up for the free e-newsletter today. - 23199
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 @ 12:14 AM
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