What are Pink Sheet Stocks
Pink Sheet Stocks are those stocks that are traded through an over-the counter (OTC) market rather than a major exchange such as the New York Exchange (NYSE) or the NASDAQ. The Over-the-counter market is defined as the market in which securities are traded outside of a formal exchange, usually in a broker-dealer network.
The securities that are listed on over the counter markets may not meet the requirements of listing on an exchange, and therefore lead to turn this alternative option of market to raise the capital. The Over-the-counter market also known as off-exchange.
Pink Sheet Stocks are also known as OTC stocks that can be traded directly without any formal exchange. Trading in OTC stocks results in higher trading costs with low liquidity which cause longer time to find buyers.
How do pink sheet stocks work?
The process of buying/selling pink sheet stocks is similar to that of buying/selling stocks that are listed on major stock exchange. But the difference lies in between of trading flexibility and total returns.tr
Many brokerage platforms have moved to commission-free trading for stocks listed on major exchange but mostly still charge brokerage for OTC trades. Investors also do not have the option to buy/sell the order for pink sheet stocks which means you can’t simply have your bid matched to the current asking price or vice-versa. Instead, you have to place a limit order, and manually enter your desired purchase or sale price.
Advantages of Pink Sheet stocks
• Access to wide range of stocks
• Non-listed companies on stock exchange can also their stocks available to investors
• Low priced stocks
• Required minimum capital
• Have chances to capitalize on growth
• Transaction cost is low as they do not carry the high listing fees
Disadvantages of Pink Sheet stocks
• Provide less visibility into the operation and accounting of the underlying business
• Low trading volume
• High volatility
• Lack of any regulatory there is chances of disclosure of financial information.
• These stocks are prone to fraud and price manipulation
• Low liquidity
Examples of Pink Sheet Securities
OTC Markets Group is a group of most actively traded companies.
• Tencent Holdings LTD, the Chinese multimedia company
• BHP Group Limited, an Australian securities company
• Grayscale Bitcoin Trust, an American Bitcoin trading platform
Also read: What is ETF
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