The terms penny stock and pink sheet are like night and day as are bulletin board and micro cap. Unknowing investors often lump them all into one category and get into trouble or miss out on opportunities.

One way to educate yourself about the true definition of these terms is to use word association. Think of an aspect of the term and come up with a commonality with the actual name.

Penny Stocks ” As a general rule of thumb, any stock priced under $5.00 is considered a penny stock, though many traders dont consider a stock to be a penny stock unless its priced under $1.00. Either is acceptable, though one definition clearly expands the number of stocks that could qualify as penny stocks.

If you want to short or buy a penny stock on margin, make sure you know whom youre doing business with. Some brokerages will not allow shorting of any stock under $5; others dont place a limit. So, choose wisely.

Its also generally true that penny stocks tend to be a pink sheet or a bulletin board stock (see below), though its imperative to understand that many exchange-listed stocks are also penny stocks. These low-priced exchange-listed stocks have at some point met the same requirements as some of the worlds highest-priced stocks. The low share price may be a temporary situation, not to mention an incredible investment opportunity. The size of the company (market cap) or its exchange has nothing to do with determining whether its a penny stock or not.

You may have been told to steer clear of pink sheet stocks because they often hold the most risk. Maintained by Pink OTC Markets Inc., some of them dont deserve their bad reputation.

Some foreign stocks choose to list their equities in the U.S. market, but for technical or logistic reasons cant list their stock with one of the exchanges or the bulletin board system. That doesnt make the investment any less credible though. The size of the company (or market cap) is irrelevant.

If viewing weekly financial statements of a company is a deal breaker for you, then stay away from pink sheet stocks. The majority of them dont disclose audited accounting statements because they arent required to do so.

However, if a stock isnt listed on the NYSE or AMEX but rather the OTC market or as an OTCBB stock, it still means it has met SEC reporting/disclosure requirements and is considered to be of fully reporting status.

The bulletin board system does not rule the over-the-counter market. The pink sheet and on a technical basis, the NASDAQ, are also OTC markets.

Share price doesnt play a direct role in determining if an equity is listed as a bulletin board stock or an exchange-listed stock either. However, the exchanges (or the NASDAQ) have certain market cap requirements that may not be yet met by a bulletin board company.

Dont just assume that all bulletin board stocks lack the stability of exchange-listed stocks. You might find some hidden gems that are stronger and more productive.

The reason there is plenty of micro cap stocks with share prices over $5 are because price isnt considered when making that determination. Micro caps are simply stocks with market caps of $250 million or less.

You may think that the companies listed on the New York Stock Exchange are bigger and stronger than all the others, but thats not true. The minimum market cap stands at $25 million, so even a micro cap stock can make the NYSE.

Bottom Line

Penny stock, pink sheet, bulletin board, and micro cap four terms that are tossed around quite a bit as if they all meant the same thing. Theyre all quite unique though. If an investor chooses to overlook a particular stock because its not an attractive investment, thats fine. However, overlooking a stock simply because of a semantic misunderstanding could be a regrettable decision. Knowledge is power.

Your most educational website for information regarding penny stocks to top stock picks is www.smallcapnetwork.com. We offer timely and meaningful market commentary and trading ideas. Sign up for the free e-newsletter today.