What Are Over the Counter Pink Sheets?

Over the counter pink sheets is a term that traders use to refer to a certain kind of equity that is not available on the more well known stock exchanges. In order to qualify for a listing with an exchange such as the New York Stock Exchange (NYSE) and others, a company must file with the Securities and Exchange Commission (SEC). This paperwork essentially establishes the fundamental health of the company. Filing with the SEC does not guarantee the legitimacy of the business behind a particular stock but it eliminates the possibility of complete fraud. The SEC provides oversight in these matters on large exchanges.

Over the counter pink sheets, on the other hand, are stocks whose businesses have not filed such paperwork with the SEC. They are not traded on the large exchanges. If you want to trade in over the counter pink sheets, you must buy them in the over-the-counter (OTC) market. This is a trading arena that is home to many stocks that cannot meet the filing requirements set by the SEC.

Other common characteristics of over the counter pink sheets are their prices. Most are known as penny stock because their per-share price is usually less than one dollar.

Benefits of Trading Over the Counter Pink Sheets

Many investors flock to over the counter pink sheets because they have so much potential. They are inherently more risky than other investments due to the shadowy nature of their underlying businesses. However, their low prices give them greater possible gains. A small investment in over the counter pink sheets can lead to significant profits because each incremental gain is multiplied by the number of shares owned.

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