Penny Stocks, Pink Sheets, Or Micro Caps What's the Difference?
The terms penny stock and pink sheet are like night and day as are bulletin board and micro cap. Unknowing investors often lump them all into one category and get into trouble or miss out on opportunities.
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.
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.
Often a stocks price sinks because a temporary situation has developed. It may even have met the same requirements as higher priced stocks at some point. A stock with this type of price movement could be a great investment opportunity when it trades 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.
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.
This may come as a surprise, but the bulletin board system is not the only over-the-counter game in town. Both pink sheet and NASDAQ markets are OTC markets.
When it comes to determining if an equity should be listed as a bulletin board stock or an exchange-listed stock, share price doesnt come into play. Specific market caps may be required, however.
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.
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
Penny stock, pink sheet, bulletin board, and micro cap four terms that are tossed around quite a bit as if they all meant the same thing. Theyre all quite unique though. If an investor chooses to overlook a particular stock because its not an attractive investment, thats fine. However, overlooking a stock simply because of a semantic misunderstanding could be a regrettable decision. Knowledge is power.
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. - 23218
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.
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.
Often a stocks price sinks because a temporary situation has developed. It may even have met the same requirements as higher priced stocks at some point. A stock with this type of price movement could be a great investment opportunity when it trades 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.
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.
This may come as a surprise, but the bulletin board system is not the only over-the-counter game in town. Both pink sheet and NASDAQ markets are OTC markets.
When it comes to determining if an equity should be listed as a bulletin board stock or an exchange-listed stock, share price doesnt come into play. Specific market caps may be required, however.
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.
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
Penny stock, pink sheet, bulletin board, and micro cap four terms that are tossed around quite a bit as if they all meant the same thing. Theyre all quite unique though. If an investor chooses to overlook a particular stock because its not an attractive investment, thats fine. However, overlooking a stock simply because of a semantic misunderstanding could be a regrettable decision. Knowledge is power.
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. - 23218
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. Investors with an appetite for high risk/reward investment ideas should consider getting his free newsletter publication by visiting www.smallcapnetwork.com and subscribing.
posted by X - Men @ 4:39 AM
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