What It Is:
Pink Sheets is a publication compiled daily by the National Quotation Bureau that shows over-the-counter (OTC) stocks' bid and ask prices and the dealers that exchange them.
How It Works/Example:
The companies listed on the pink sheets generally do not meet meet the standards required to trade on formal exchanges (such as the NYSE, Nasdaq, AMEX) due to their small size or inability to file with the SEC. With a few exceptions, Pink Sheet stocks are small, thinly-traded issues that often carry a great deal of risk.
[InvestingAnswers Guide: The Lowdown on Penny Stocks]
The securities listed tend to be traded with little frequency. They are often penny stocks or companies with a narrow geographic interest. Most major online brokerages will allow investors to puchase pink sheets. Many are listed on the OTCQX marketplace.
Why It Matters:
Pink Sheets allow investors to find companies and stocks that can not be found elsewhere. Companies that were too small in size to be listed on normal exchanges and would normally be overlooked could offer good growth potential for investors.
But while all investments involve varying levels of risk, Pink Sheet stocks are among the most speculative. Many of these firms are still in early development stages and have no proven track record. While many are legitimate businesses with real products and services, the lack of reliable data and readily available public information can easily expose them to fraud and manipulation.
Want to learn more about Pink Sheets? See "These Two Letters Could Be The Secret to High Yields," for a clear explanation of how to make these work for you.