The Risks and Rewards of Pink Sheets Penny Stocks

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With an interest in buying penny stocks, you almost certainly would have heard the term “pink sheets” or just “pinks” at least once.  The term “pink sheets” actually comes from the color of paper the stock quotes were originally printed on but now it refers to the electronic quotation system used for a variety of OTC securities.

Pink sheets penny stocks are essentially stocks with a price below $5.00 that trade on the Pink Sheets electronic quotation service. But what exactly is the pink sheets and how does it differ from the OTCBB and major markets like the NASDAQ and NYSE?

An important point to note about the pink sheets is that it is not a registered stock exchange but a computerized quotation system and the stocks that are listed on the pink sheets are generally stocks that could not meet the specific requirements of a major stock exchange.  Furthermore, unlike stock exchanges the pink sheets are not regulated by the Securities and Exchange Commission (SEC).  As such there are virtually no requirements for historical or even current financial data though companies issuing stock on the Pink Sheets are at least bound by both federal and state security laws.

Obviously due to the lack of regulation, the pink sheets can be a dangerous place to buy penny stocks.  Therefore, you really need to perform your due diligence on any potential company your interested buying stock in.  Companies can vanish with out a trace from the pink sheets along with your hard earned cash.  Due to these factors in addition to the extreme volatility and unpredictability of pink sheets penny stocks, it’s highly recommended that an investor stick to trading with money he can afford to lose and no more than 10% of of his portfolio.

Having said all this, by exercising both caution and experience and by implementing specific stock strategies, a lot of money can be made in the pink sheets.  Why?  Simply, pink sheets stocks can double or triple in price very easily.  A 5 cent share for example can quite easily become a 10 cent or 25 cent share in a matter of weeks,  leaving a 100% or 400% gain respectfully.   Seeing that the average stock goes up a measly 6% per year, it’s very easy to see the lure of penny stock investing.

Whether you decide to buy penny stocks on the pink sheets or on the OTCBB, by being very selective in the stocks you choose in addition to using various proven stock strategies to limit your risk, this portion of your overall portfolio can very easily become your most profitable one.

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