Pink Sheets: Definition, Examples, & OTC Markets in 2020

Pink Sheets: Definition, Examples, & OTC Markets in 2020


Pink Sheets

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Have you heard of pink sheet stocks? Do you understand how they’re traded?

The pink sheets are a listing of over-the-counter (OTC) stocks that work differently than those featured on a stock exchange. Many traders get a bit uneasy around this topic … Why?

Pink-sheet securities tend to be associated with small, sketchy companies.

But with the right knowledge and diligence, there can be great trading opportunities with these risky stocks. More on that later on.

For now, know that I’ve made most of my wealth through trading penny stocks. For me, it’s been an amazing way to hone my trading and teaching techniques, while building a fortune over time.**

[**My results are NOT typical. I’ve spent years developing exceptional skills and knowledge. Always remember trading is risky. Never risk more than you can afford.]

This isn’t investing. It’s trading. There’s a big difference. With trading, you don’t have to wait for months or years to collect profits or realize losses. Trading in this niche can move FAST. So you gotta be prepared. Especially if you trade penny stocks and pink sheets…

So let’s look at pink sheets, OTC pink sheets listing requirements, and how to trade pink sheet stocks online.

What Are Pink Sheets?

What Are Pink Sheets?
© 2020 Millionaire Media, LLC

Pink Sheets are stocks that are traded over the counter — that’s why they’re often called OTC stocks. In other words, they aren’t traded on the major exchanges, like the NYSE or the Nasdaq.

And stocks on pink sheets aren’t subject to the same financial disclosure rules as larger stocks.

These stocks got their name from the pink paper the quotes used to be printed on. These days, they’re traded electronically on the OTC Markets.

These companies are usually penny stocks. They’re some of the smallest companies on the market.

See which stocks I’m watching — get my no-cost weekly stock watchlist here.

How Do Pink Sheets Work?

Every day, the OTC Markets Group distributes listings of smaller stocks — usually penny stocks. They’re thinly traded and not usually interesting to major traders and investors. Just like regular stocks, there’s a bid and ask price for each.

You can identify pink sheet stocks by the ‘PK’ ending on stock tickers.

With pink sheets, you can find companies whose stocks you might want to trade — long or short. Pull up their charts on a platform like StocksToTrade to start researching where those stock prices might be heading.

Pink Sheet Listings

Most companies listed on the pink sheets are small, sometimes sketchy companies. But that doesn’t mean you can’t trade them.

Yep, some of these companies are small and illiquid. So you gotta be careful. But just like stocks listed on the major exchanges, these companies can move on a catalyst — like a press release or earnings.

That can lure investors or traders to the stock. Again, be prepared. These plays can go fast and fade back to nothing.

But there are a few companies listed on the pink sheets that are legitimate companies…

Pink Sheets Examples

Let’s look at a few legit companies listed on the pink sheets:

  • Nestle (OTCPK: NSRGY)
  • LVMH Moet Hennessy Louis Vuitton (OTCPK: LVMHF)
  • Bayer Aktiengesellschaft (OTCPK: BAYRY)

These are companies with market caps in the billions. Bayer is a large pharmaceutical company with almost 100,000 employees.

It has real products and a real business structure. So why go public on the pink sheets? To simplify their exposure to the U.S. markets. These companies can provide one set of financials (by choice since it’s not a listing requirement) instead of providing another set that meets U.S. standards.

So, yeah, there are real companies. But there’s also a lot of sketchy companies. There are shell companies and others close to bankruptcy. It’s a buyer-beware market. This is why it’s so important to do your own research.

If you’re trading one of these stocks based on a press release … don’t overstay your welcome.

Pink Sheet Trading Time and Access

The OTC Markets and pink sheets trading is open from 6 a.m. to 5 p.m. Monday through Friday. But like the major exchanges, the majority of the trading is done during regular market hours of 9:30 a.m. to 4 p.m.

Premarket and after-hours trading will be illiquid, so your order may not get filled. I don’t recommend trading after hours.

How Are the Pink Sheets Different From a Stock Exchange?

How Are the Pink Sheets Different From a Stock Exchange?
© 2020 Millionaire Media, LLC

Pink sheet stocks aren’t regulated like stocks on the major stock exchanges. They’re not listed on those exchanges, either.

Some pink sheet stocks issue financial documents such as profit-and-loss reports and balance sheets, but they’re not required to do so. You won’t find them on the trading floor.

The OTC Market is not a stock exchange. It’s a quotation service. Orders are processed through market makers who input quotes and orders through secure computers.

Pink Sheets vs. OTCBB

Many people confuse pink sheets with the over-the-counter Bulletin Board (OTCBB). They’re two radically different organizations.

The OTCBB is an electronic quotation service. It also happens to list OTC stocks. It’s owned and operated by the Financial Industry Regulatory Authority (FINRA). It provides market information through its website. But the private company OTC Markets has pretty much taken over as the platform for OTC listings.

OTC stocks are listed as OTCBB, OTCQB, or OTCQX. Pink sheets are listed as OTCPK.

OTCBB companies still have to meet the requirements for listing on the OTC markets. This requires regular filings with the Security Exchange Commission (SEC).

Pink sheets have no listing requirements or disclosures with the SEC.

Why Companies Are Listed on the OTCBB

A company may be listed on the OTCBB for a number of reasons. It may be too small to list on the major exchanges. Or it may fail to meet a major exchange’s requirements and be delisted.

Or a company might list on the OTC Markets because it wants exposure to American markets without having to meet major exchange standards.

OTC Pink Sheets Listing Requirements

To list on the pink sheets, there’s only one requirement: that the company register Form 211 with the OTC Compliance Unit.

There’s no requirement to disclose financial information. Companies also aren’t required to keep a minimum price per share like the major exchanges.

Advantages and Disadvantages of Pink Sheets

Advantages and Disadvantages of Pink Sheets
© 2020 Millionaire Media, LLC

Let’s talk about penny stocks for a second…

Originally, penny stocks were called such because they traded at less than $1 per share. Today, largely because of inflation, they trade for $5 per share or less.

Some pink sheet stocks aren’t penny stocks. Most of them, however, trade at less than $20 per share. They’re often behind new, small, or at-risk companies. That’s where the risk for traders comes in.

But there can be some advantages.

For one, you can take larger positions on pink sheet stocks because they’re priced so low. Instead of buying 10 shares of a $100 stock, for instance, you could buy 1,000 shares of a $1 stock. And since price movements happen quickly, you can potentially take profits or losses much faster.

Even if a pink sheet stock moves by only a penny, great returns are still possible. Let’s take the above example. You bought 1,000 shares for $2, and you sell when the stock hits $2.02. That’s a 2 cent change.

You pocket $20 on the trade, minus fees with your broker.

That might not sound like much … But multiply those profits by hundreds of trades over months and years. See where I’m going?

Pink sheet stocks can allow you to trade new companies that are experiencing upward trends. Or you can trade a company that’s sunk super low but shows promise for an upward trend.

Don’t think it’s easy. There are risks, too.

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Disadvantages of Pink Sheets

The high bid-ask spreads can make finding buyers or sellers more difficult. You may be convinced a company will break out shortly, but you may not find enough shares to buy.

Worse, if a stock moves opposite your trade thesis, you might not be able to find buyers. You can’t exit your position quickly. That can mean big losses. And rule #1 is always to cut losses quickly.

Analysts generally don’t cover these stocks. So it’s up to you to do your research and watch out for scams. And since pink sheet stocks don’t have to provide fundamental data, information can be limited.

The Pink Sheets Tier System

The Pink Sheets Tier System
© 2020 Millionaire Media, LLC

The OTC Markets provides a tier system for identifying a stock’s health and risk level.

Tier one is a stock identified with “Pink” in pink writing. These companies have provided current information such as financial statements and a disclosure statement with annual and quarterly reports. Sticking with tier-one stocks can be smarter for risk management.

Tier two is labeled by a ‘yield’ icon. There’s limited publicly available information on the company. Companies in this category have information that is no more than six months old.

Then you have the distressed tier — the dark or defunct tier. These are labeled with a ‘stop’ icon. It means the company isn’t willing or able to provide current information to regulators or the OTC Markets.

Finally, there’s the toxic tier. These are labeled by a skull and crossbones. OTC Markets won’t provide quotes for these companies as they represent high-risk stocks. They’re considered scams or have been promoted by unscrupulous industry ‘professionals.’

Should You Trade Pink Sheets?

Before you trade pink sheets you MUST consider your risk tolerance. Remember, these are some of the sketchiest companies in the market. Especially those that don’t provide any financial information.

Whether you trade pink sheets depends on your comfort level with the trade. If you see potential and the play lines up with your strategy, it might be worth the risk. But if there’s no volume in the stock, you could get stuck in your position.

Always play it safe and cut losses quickly if the trade goes against you.

How to Buy Pink Sheet Stocks

Pink sheets aren’t traded on sheets of paper like they used to be…

You can buy pink sheets online by placing an order through your broker. But keep in mind, you’ll have to have the right data package and broker to access the pink sheet market. (I trade with these brokers.)

But before you jump into buying or selling pink sheet stocks, consider the following…

Key Tips for Pink Sheets Trading

Key Tips for Pink Sheets Trading
© 2020 Millionaire Media, LLC

If you’re interested in pink sheets trading, you need to know how to manage your risks and how to spot potential breakouts and breakdowns. Let’s look at some of the most important factors to consider before buying or shorting pink sheet stocks…

Research the Pink Sheet Company You Want to Trade

A little research goes a long way, but a lot of research makes you a smart trader. It’s amazing what you can dig up about a company if you’re willing to look.

For example, let’s say you have your eye on a penny stock that trades on the pink sheets. It looks promising, but the company doesn’t make any disclosures.

Head to Google. Seriously. Type in the company’s name, then click on the ‘News’ tab at the top of the search engine.

You can learn a lot this way. Does another company want to acquire or merge with the company you’re interested in? Has the CEO recently been ousted?

Negative and positive news can tell you a lot about potential future price movements for a given stock.

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Analyze the Pink Stock Price

Pink stock prices can change fast in just a few hours. This isn’t always the case … But I like to look for lots of price movement.

So how do you do this? Study the charts. What has the stock price done over the last day, the last week, the last month? You need to know.

What’s the bid-ask spread? What’s the volume? Answer all these questions so you know what you’re getting into.

I have several indicators I check for every trade using in my Sykes Sliding Scale. You can learn how to use this tool to help plan trades by studying my “Trader Checklist Part Deux” guide.

Learn How to Find the Most Active Pink Sheets Stocks

To find trading opportunities, look for the most active stocks. I use this stock scanning software every day. When price movement ramps up, it could mean a trade opportunity.

Think about it. If a stock remains within a few cents of its stock price for days or weeks, there’s no reason to trade that stock. I like to take advantage of supernovas. I can take the meat of the move and move on to the next trade.

Analyze the Effects of Trading Halts and the Delisting Process

Trading halts and delistings occur for a variety of reasons. You can take advantage of halts in some circumstances, but you have to pay close attention.

A trading halt happens when the exchange, such as the pink sheets, temporarily halts all trading activity for a given stock. The company might have heard rumors about fake promotions, criminal activity, or something else.

Delisting happens when the pink sheets remove a company from its listings. The company might have gone out of business, gotten acquired, or violated rules.

You typically don’t have to worry about trading halts or delisting, but it’s helpful to consider what might happen if one of those events occurs in relation to the stock you’re trading.

Why Companies List on the Pink Sheets

Why Companies List on the Pink Sheets
© 2020 Millionaire Media, LLC

Companies list on the pink sheets for the same reason that larger companies list on the major exchanges. They want to raise capital for business expenses.

Being Delisted from a Major Exchange

If a company gets delisted from a major exchange, it might list with the pink sheets to continue raising capital. Maybe the company suffered a major hit and needs to rebuild.

When this happens, you need to pay careful attention. Why did the delisting occur? How has the stock been performing since it initially debuted on the pink sheets? You gotta do your research.

Are Pink Sheet Stocks Safe?

There’s no such thing as a safe investment or a safe trade. If there were, we’d all be instantly rich.

That doesn’t mean they’re all dangerous, though. If you’re willing to put in the effort, understand the pink sheets, and research individual stocks, you can trade safer.

Risk vs. Reward

Risk vs. Reward
© 2020 Millionaire Media, LLC

It’s always a matter of risk versus reward. Let me give you an example…

Say you see an infomercial for what a company calls the most amazing vacuum cleaner. You’re intrigued. The company isn’t offering a guarantee, but you really want this vacuum.

Let’s say that the vacuum cleaner costs $600, and the ad promises it can cut your cleaning time in half. That’s a risk-versus-reward situation.

The risk is that you buy the vacuum and it doesn’t work as expected. You might be able to sell it online — probably at a loss. And you’ll be thoroughly disappointed.

The reward happens if the vacuum arrives and performs exactly as promised. Your house is cleaner, you spend less time cleaning, and the cost becomes worth the product.

It’s the same way with the stock market. You’re taking a risk because you believe the potential reward outweighs it. But you gotta work your butt off for it.

How to Learn About the Stock Market

How to Learn About the Stock Market
© 2020 Millionaire Media, LLC

Ready to learn even more about trading and the stock market? I hope so.

Teaching trading is my passion in life — next to my charity Karmagawa and traveling. I’ve been trading for over 20 years and teaching for over 10 years. I want my students to learn to think for themselves and trade through any kind of market.

I want them to be self-sufficient traders. You can be one too.

Start your penny stock journey free right here on my blog or on my YouTube channel. Check out my penny stocks guide (also free) and download my autobiography “An American Hedge Fund.” Check out my Volatility Survival Guide.

Read and watch as much as you can every day. That’s one way you can become more comfortable with pink sheets, OTC stocks, and trading.

Learn With Me in the Trading Challenge

Ready to step it up a notch? Apply for the Trading Challenge to dive deep into trading penny stocks and immerse yourself in the process.

You’ll learn from me as well as from my top students like Tim Lento, Mark Croock, Tim Grittani, and Michael Goode. Not a student yet? Apply today.

Will you be my next millionaire student? Maybe. Maybe not. But you’ll never know unless you try.

Frequently Asked Questions About Pink Sheets

What does Pink Sheet mean?

Pink Sheet refers to a listing of over-the-counter (OTC) stocks. They aren’t subject to the same financial disclosure rules as big company stocks. Pink Sheets tend to be associated with small, sketchy companies.

Are Pink Sheet stocks safe?

Not as a long-term investment. There’s no such thing as a safe investment or safe trade. All trading involves risk. Pink Sheet stocks have no financial disclosure rules which means they are higher risk.

How do I trade OTC Pink Sheets?

Pink Sheet stocks are traded on the OTC Market. For practical purposes, the growth of online trading platforms means you trade them just like any other stock. Your broker can provide specific information about trading OTC Pink Sheets.

Conclusion

Conclusion
© 2020 Millionaire Media, LLC

The biggest appeal that pink sheets carry for traders is their low price. These stocks are attractive to day traders looking for low-priced stocks that can make big, fast moves.

But a lot of pink sheet stocks lack transparency. They can also be very volatile and lack stringent regulation. But if you’re a trader who’s willing to do your own research and due diligence, these stocks can provide trading opportunities.

If you’re one of those traders and ready to commit to your trading education, apply for my Trading Challenge. It’s not easy, and not everyone who applies will be accepted. Are you up for it? Apply today!

What do you think about pink sheet stocks? Let me know in the comments … I love to hear from you!

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