Pink Sheets Definition: Day Trading Terminology

Pink Sheets

Pink Sheets Definition: Day Trading Terminology

Pink sheets refer to a daily list of bid/ask quotations for over-the-counter (OTC) stocks compiled by the National Quotation Bureau. Companies that trade on the pink sheets do not need to meet the stringent requirements for trading on a stock exchange, and the trading of pink sheet stocks is much more lightly regulated than trading stocks over an official exchange.

Pink sheet stocks are traded by brokers and market makers using a decentralized OTC system, most often either the OTCBB or OTC Link. The restrictions for being traded on these decentralized systems are extremely low or non-existent, and generally only require some basic level of financial reporting.

With the growing use of computers, many pink sheet stocks now receive more regular intraday pricing updates, and are quoted on an electronic quotation system.

Trading Pink Sheet Stocks

Trading in pink sheet stocks is different from trading in stocks that are listed on an official exchange. The low level of available information means that investors need to be far more proactive in seeking out the information used to evaluate pink sheet companies.

However, the potential for dramatic price changes does make trading pink sheet stocks extremely attractive, particularly for retail traders whose low capital base will not be impacted by the small market capitalization values of pink sheet companies.

Final Thoughts

Pink sheet stocks are an important element of of the modern financial ecosystem. Today’s pink sheet company could be tomorrow’s industry titan.

The incredible upside potential to these stocks make them an attractive venture for investors who have the skills and knowledge to evaluate them successfully, and the ongoing digitization of every aspect of the financial markets means that pink sheet stocks are increasingly liquid and becoming more and more popular to trade.

Since they don’t have the same stringent requirements that exchanges have, they can be a much riskier asset to invest in long-term so due diligence is a must.