Trading is risky, and most day traders lose money. Ross's results are not typical. All information provided is for educational purposes and is not investment advice or buy/sell recommendations. Read our full disclaimer.

Warrior Trading Blog

Pink Sheet Stocks – What They Are And Why They Exist

pink sheet stocks

Pink Sheet stocks got their name when they were initially being printed on pink paper back in the day. Pink sheet stocks are a common topic amongst stock exchange forums. Remember the movie Wolf of Wall Street and how Belfort easily manipulated pink sheet stocks?

This aspect of being easily manipulated has brought out a lot of speculation regarding pink sheet stocks. But, pink sheets are not all that bad if approached the right way. In this article, we will discuss all you need to know about Pink Sheets and why they exist.

What are Pink Sheet Stocks?

Pink sheets are stocks that are traded on over the counter markets and they are widely known for how cheap they are. Unlike other exchanges, pink sheets do provide a real-time quotation for their stocks. These stocks also make quotes for any company that doesn’t participate in other exchanges.

To be listed as a pink sheet, a company does not need to meet any mandatory filing requirements. It is the ideal exchange for companies that feel the urge not to open up their financial details which is not so ideal for investors looking for detailed info on a companies financials.

The good thing about Pink sheet quotes is that their publication is done every day. This task is carried out by the National Quotation Bureau. You can also refer to pink sheet stock trading as over the counter stocks.

How to Access and When To Trade Pink Sheets?

As discussed earlier, companies listed as a pink sheet aren’t required to file financial reports with the Securities Exchange Commission, making it easy for them to be get listed. To trade pink sheets you need to open a brokerage account but you need to make sure that they allow this type of trading.

Since it is so risky, a lot of brokers won’t even allow investors to trade them and may even charge larger commissions and fees to do so. It’s kind of like the wild, wild west when it comes to pink sheets.

They trade the same hours as the normal market, 9:30 to 4:00pm EST.

Do Pink Sheet Companies have Any Financial Requirements?

Filing Form 211 is mandatory for a company to be listed on pink sheets. Companies in foreign countries should also meet the financial regulations basing on their locale. However, these statements aren’t subject to auditing by the Financial Industry Regulation Authority.

You should also note that there is different levels of pink sheet listings. The higher the level, the more requirements are needed. The company should also have not less than 50 shareholders and a minimum bid of $0.25. Most pink sheet stocks are priced well below that minimum with a  lot of them often trading below a penny per share.

Are There Any Risks Associated with Trading Pink Sheets?

The fact that companies listed on pink sheets don’t have to meet any regulatory standards this puts shareholders at risk. In the past, a lot of companies have exploited this loophole to their ‘advantages’. It is, therefore, best if an investor approaches pink sheets with extreme caution. They are usually very illiquid and often victims of pump and dump schemes.

You should also know that there are a lot of genuine companies listed on pink sheets whose intention is to raise capital. Pink sheets are a suitable option for micro-cap companies since it doesn’t require a lot of paperwork and extra fees. Compared to giant stock exchange such as NYSE where you have to pay a lot of money and undergo scrutiny from the Securities Exchange Commission.

Is Trading Pink Sheets A Good Idea?

Let’s face it, pink sheets appear to be quite tempting from the overview. But, when you consider the risk factors, pink sheets are not an ideal option for the average investor.

The price vulnerability and illiquidity make it worse for day traders looking scalp or get in and out of trades quickly with any type of size, which is why we don’t recommend pink sheet trading at all. It’s better to trade lower prices companies that are on a listed exchange like the NYSE or NASDAQ.