Penny Stock Investing And Over The Counter Bulletin Board
Many investors call a stock trading for less than $5 per share as a penny stock. While other investors think that any stock trading for one cent is a penny stock. Both these definiations are correct. But a more accurate definition of a penny stock is stocks that trade on OTCBB- Over The Counter Bulletin Board.
Both these definitions are correct. There is not one way of defining a penny stock. But the most accurate definition of a penny stock is a stock listed on the Over the Counter Market and the Pink Sheets.
Now, if you accept this definition of a penny stock, it simply eliminates all those stocks that are being traded for let's says even $0.1-$5 on New York Stock Exchange (NYSE) and NASDAQ Small Cap Market. Those stocks that trade on NYSE or NASDAQ Small Cap Market for this price of $0.1-$% are those stocks that are in trouble as their companies might be facing mismangement or financial trouble. This means most of these companies are close to bankruptcies and soon will be delisted from NYSE or NASDAQ Small Cap Market.
Now, there are investors who specialize in investing on bankruptcies. It is upto you. However, it is more profitable to invest in companies that are about to start their future rather than companies that have ended their future and are about to enter bankruptcy. Most of these companies will get liquidated so why invest in their stocks and lose your investment. Now, many companies who once were penny stock companies with shares selling for something like $0.5 eventually got listed on NYSE and NASDAQ and their stocks skyrocketed to $50-100. If you had invested in Microsoft. Toys R Us or even MCSI when they were penny stock companies, you might have made millions when their stocks got listed on NYSE or NASDAQ.
So what is an Over The Counter Market? The Over the Counter Market or Over the Counter Bulletin Board (OTCBB) is a regulated quotation service that displays real time quotes, last sales price and volume information in stocks listed on it.
What types of stocks get traded on the Over the Counter Bulletin Boards (OTCBB)? Stocks that get traded on OTCBB might include national, regional, foreign equity issues plus warrants, units, ADRs (American Depository Receipts) and DPPs ( Direct Participation Programs).
Over the Counter Market (OTC) started in 1990 when the Penny Stock Reform Act of 1990 was passed. Penny Stock Reform Act of 1990 mandated Securities and Exchange Commission (SEC) to start an electronic system that would implement the rules of Section 17B of the Exchange Act. This OTC Market eventually became the Over the Counter Bulletin Board (OTCBB). As said earlier, it is easier for a company to get listed on OTCBB as compared to the regular exchanges like NYSE or NASDAQ. Many young companies start from OTCBB and eventually make it to NYSE or NASDAQ. If you invest in one such penny stock company, you can become rich in a few years time!
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