Why Pink Sheets Penny Stocks Are Risky
Posted on December 6th, 2011
Penny stocks have gained their fame in the market over the years, and there is no doubt that a lot of stock investors are more interested in investing with penny stocks nowadays, even those who are first timers and do not really know how to buy penny stocks yet.
Penny stocks are defined as stocks that are sold at a lower price of less than $5 per share. As such, these stocks are not traded in major stock markets. Instead, we can see the penny stocks listed on over-the-counter (OTC) markets and pink sheet markets. However, unlike the stocks that are seen in over-the-counter markets, those that are listed in pink sheets are not required to file financial reports with the Securities and Exchange Commission (SEC), because they are not regulated by SEC — thus, they are riskier and far more dangerous to invest into because there are virtually no requirements for historical or even current financial data for pink sheets stocks.
The term “pink sheets” actually comes from the color of paper the stock quotes were originally printed on, and they now trade on the Pink Sheets electronic quotation service. One of the most important points to note and understand about the pink sheets is that these stocks are not a registered stock exchange — they are just 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.
With this, the investors who still choose to invest in pink sheets penny stocks are really recommended to perform thorough due diligence on any potential company which they plan to trade penny stocks with. As a matter of fact, companies can actually vanish without a trace from the pink sheets — and one’s hard earned funds may vanish with them as well. In addition to the extreme volatility and unpredictability of pink sheets penny stocks, and due to these reasons and factors, the investors of pink sheets penny stocks are highly recommended to stick to trading or investing just enough amount of money which he can afford to lose.
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Tags: Penny Stocks, Stocks
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