When you trade penny stocks, you need to find them on the Pink Sheets. In general penny stocks are those stocks that get traded below $5 per share and don’t fulfill the requirements for getting traded on the regular exchanges like the NYSE and NASDAQ. Most of them get traded over the counter on the Pink Sheets as well as Over The Counter Bulletin Boards (OTCBBs).
Pink Sheet Stocks
Pink Sheets, LLC were where most start up companies would get listed in the beginning. Not much disclosure was required to get listed on the pink sheets. Keep this in mind,pink sheets are not a regular exchange like the NYSE, AMEX or NASDAQ. It is just a quotation service with the only thing required by a company to get listed on them is have just one market maker quoting it’s stocks. The company is not required to disclose it’s financials. As a results you had to be careful while trading the stocks on these Pink Sheets as there was not much disclosed about the company.
Chances of fraud were high as the information was virtually unaccountable with no required filings and inaccuracies rarely got corrected. But things have changed. A few months back a new classification system was introduced. This new classification system let’s an investor to sort out companies that have no information disclosure from those that provide you with enough information to make smart investing decisions. The good thing is that now you will find the companies listed under three different categories. Each category has a specific listing requirement.
The top category is the PremierQX. These are those companies whose stocks get traded for a minimum of $1 per share and these stocks meet all the requirements to be listed on the regular exchanges. What this means is that these companies are posting quarterly as well as annual reports.
This is the second category. These companies fulfill all the listing requirements of the regular exchanges but don’t trade for $1.
International QTCQX Stocks
This is the third category. International QTCQX Stocks are those international stocks that fulfill the listing requirements of their respective international exchanges and the companies make their financial reports available in English.
So, any stock listed outside these three categories must raise a red flag. These three categories are the safest for investment purposes. But it doesn’t mean that you don’t need any market analysis of the companies. You will need to analyze these stocks based on their merits. Good Luck!