Making Money In Penny Stocks, Pink Sheets and Micro Caps Require Knowledge
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.
Most of the time, traders dont consider a stock that trades over $1 a penny stock. Then there are others who define any stock less than $5 as one. There arent any ramifications for using either benchmark.
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.
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.
Where a foreign company chooses to list their stock is not a gauge of credibility. For some technical or logistical reason, the stock cannot be listed with one of the exchanges or the bulletin board system.
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.
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.
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.
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.
Micro Cap " The standard definition of a micro cap company is any company with a market cap (issued shares multiplied by share price) of $250 million or less, though the number isnt set in stone. Note that share price has nothing to do with the determination; there are plenty of micro cap stocks with share prices well over $5.00.
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
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.
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. - 23226
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.
Most of the time, traders dont consider a stock that trades over $1 a penny stock. Then there are others who define any stock less than $5 as one. There arent any ramifications for using either benchmark.
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.
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.
Where a foreign company chooses to list their stock is not a gauge of credibility. For some technical or logistical reason, the stock cannot be listed with one of the exchanges or the bulletin board system.
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.
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.
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.
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.
Micro Cap " The standard definition of a micro cap company is any company with a market cap (issued shares multiplied by share price) of $250 million or less, though the number isnt set in stone. Note that share price has nothing to do with the determination; there are plenty of micro cap stocks with share prices well over $5.00.
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
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.
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. - 23226
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 @ 6:44 AM
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