Research Penny Stocks – How To Use Pink Sheets?

Research Penny Stocks

If you want to research penny stocks then you will need to understand how to use the pink sheets so you can try to research the potential companies and stocks. The pink sheets have evolved over the years, but these were originally named because the quotes were placed on pink paper. Today knowing how to invest in penny stocks means knowing how to read and understand the tier system that was put in place to help investors. There are 5 tiers used to rate penny stocks in the pink sheets, and these are trusted, transparent, distressed, dark or defunct, and toxic. Each of these tiers will have stocks that involve a specific level of risk. Understanding the amount of risk that each tier brings is important so that you stay within your acceptable risk levels.

When you use pink sheets to research penny stocks you will want to start with stocks listed in the trusted tier. These companies are determined to be more trustworthy than most penny stocks, and they include both American and International companies. These are the cream of the crop, the choices that are predicted to make penny stock fortunes in some cases. Placement in the trusted tier shows that the stock has been deemed a good investment and has a solid financial footing. The odds are less likely that a stock in the trusted tier will go under and investors will lose everything, and this tier is the most popular choice for most investors.

The transparent tier of the pink sheets when you research penny stocks will indicate companies that have provided significant financial history and some paperwork with the SEC or other regulatory agency. These stocks are not as prized as the trusted tier stocks but they are close. Many of the companies in this tier are starting up and have only been in business a limited time. Pink sheets penny stocks also include the distressed tier, and these stocks represent an incredible amount of risk but also the potential for very high returns. These stocks are not for conservative investors averse to high risks and very few actually rise above this tier. Distressed penny stocks are usually avoided by all but the most daring investors, and these choices can pay off once in a while.

The last two tiers of the pink sheets when you research penny stocks are the dark or defunct tier and the toxic tier, and neither of these tiers is recommended by the financial experts. These companies either have no information at all available or there is no market maker, which means the stock trades in the gray market and is denoted by an exclamation mark. Toxic tier stocks will never make the penny stock recommendations, and the symbol for the tier is a skull with a set of crossbones. Once you understand how the tiers are rated in the pink sheets and what each tier means for your risks you will be able to make better investment decisions. With a little practice these sheets can help you make successful trades.