Before you buy Pink Sheet stocks, you first must know, that Pink Sheet Stocks (Penny Stocks) are not required to meet listing standards like stocks listed on NASDAQ or the New York Stock Exchange. These stocks are traded over the counter (OTC) via an electronic quotation system. Earlier, these stocks were released in pink slips or sheets. Hence, the funny name, Pink Sheet Stocks. Later, these listings were called penny stocks.
FIRST STEP: Open an account with a brokerage firm.
Individuals cannot buy or sell stocks through the OTC Markets. With an account you can trade Pink Sheet stocks, as well as stocks listed on NASDAQ, and the New York Stock Exchange. There are three types of brokers: a full service broker, a discount broker, and an on-line broker. Full-service brokers can be very expensive; however they can offer advice on which stocks to buy. Discount brokers charge less per transaction but offer less advice. And online brokers offer the cheapest way to trade your stocks. But, you do your own research (This is the method I have chosen).
Before you choose a broker, make sure they will accept Pink Sheets stocks orders. Not all brokers do! Below is a list of some brokerages that trade Pink Sheets stocks:
– E*Trade Financial
STEP TWO: Learn the differences related to limit order vs. market order
Simply stated, a limit order is an order to buy or sell a stock at a certain price. When using market orders, you have no control over the price at which your stock will be purchased. Since the market price for your stock could go up or down substantially before your order goes through, a market order may cost you more money for the stock than you wanted to pay. Or, you might sell at a lower price then you wanted.
STEP THREE: Always research your proposed investment.
It’s imperative that you make your decisions to buy Pink Sheet stocks based on thorough research of the company’s annual report and financial statements. Be persistent, because good information is hard to find for many of these companies. Be careful when you make a decision to invest in a Pink Sheet stocks, there has been and will continue to be lots of fraud in this area of investing. Do your research!