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.
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.
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.
One of the biggest downsides to pink sheet stocks is a lack of transparency. These companies arent required to report audited accounting statements, although many do anyway. If the stock youre considering discloses its business, it might be worth a second look.
Bulletin Board ” Though commonly (and somewhat errantly) referred to as trading on the OTC market, or as an OTCBB stock, a bulletin board equity isnt exchange-listed like an NYSE or AMEX stock is. Yet, these companies have met the quarterly reporting/disclosure requirements of the Securities Exchange Commission. These companies are said to be of a 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.
Share price doesnt play a direct role in determining if an equity is listed as a bulletin board stock or an exchange-listed stock either. However, the exchanges (or the NASDAQ) have certain market cap requirements that may not be yet met by a bulletin board company.
Dont just assume that all bulletin board stocks lack the stability of exchange-listed stocks. You might find some hidden gems that are stronger and more productive.
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.
Micro Caps can also trade on any exchange, so its status isnt based on whether its listed on the New York Stock Exchange. Its minimum requirement is only $ 25 million.
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.
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.
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