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Pink sheet stocks are stocks that trade through the over-the-counter (OTC) market rather than through a major stock exchange. The term “pink sheets” comes from the paper that stock quotes used to be printed on, though today, stock quotes and stock trading takes place electronically.
The over-the-counter market may appeal to smaller companies and companies that don’t meet the listing requirements of the major stock exchanges. A pink sheet stock does not face the same level of regulation as stocks from publicly traded companies that are traded on the New York Stock Exchange or NASDAQ and many pink sheet stocks tend to be volatile and high risk.
Key Points
• Pink sheet stocks trade over-the-counter (OTC), not on major stock exchanges.
• Pink sheet stocks are listed on the OTC market along with the stock’s country of origin, price, and trading volume.
• Companies may use pink sheets/OTC for such reasons as to save money on the IPO process, because they’re in financial distress, and/or because they can’t meet SEC listing requirements.
• Risks of pink sheet stocks include potential fraud, lack of regulation, and limited transparency.
• Pink sheet stocks also tend to have low liquidity and be highly volatile.
What Is a Pink Sheet OTC?
Pink sheet stocks are those that trade over the counter (OTC), rather than via stock exchanges. OTC Markets Group provides quotes for pink sheet stocks, and broker-dealers execute trades directly with each other.
Pink sheet OTC stock trading happens on an open market that does not have the same level of financial reporting rules as mandated by trading on the NYSE, NASDAQ or another stock exchange. It’s not illegal, though the Securities and Exchange Commission (SEC) warns investors to stay vigilant for potential scams or fraudulent trading involving the pink sheets market and microcap or penny stocks.
A company may choose to sell shares on the over-the-counter market if it can not meet the listing requirements established by the SEC, or does not want the expense of going through the IPO process. Many pink sheet stocks are penny stocks.
Pink sheet stocks can be highly volatile and risky so it’s important for investors to understand both the risks and potential rewards.
Listing Requirements
In order for a company to get listed on OTC pink sheets, they must file Form 211 with the Financial Industry Regulatory Authority (FINRA). Companies typically do this through a sponsoring market maker, or registered broker dealer firm. The sponsoring market maker accepts the risk of holding a certain number of shares in a pink sheet company to facilitate trading of those shares.
The Form 211 asks for financial information about the listed company. The broker dealer can then use this information to generate a stock price quote. Pink sheet over-the-counter stocks do not need to adhere to the same financial reporting requirements as stocks that trade on major exchanges.
Are Pink Sheets and OTC the Same?
The terms pink sheet stocks, and OTC or over the counter, are not the same thing, though they both refer to trades that take place outside of the traditional stock exchanges. The company OTC Markets provides quotes for companies listed on the pink sheets, as well as the OTCQX and the OTCQB trading marketplaces.
The OTCQX allows for trading of companies that are not listed on traditional exchanges but still subject to SEC rules. The OTCQB includes emerging companies with a stock price of at least a penny that are not in bankruptcy, have a minimum of 50 beneficial shareholders who each own 100 shares, and annually confirm that information is up to date.
Pink sheet stocks listed on the OTC marketplace have fewer financial reporting requirements than the OTCQX and OTCQB. In mid-2025, the OTC Markets Group took the step of splitting its Pink Current Market into two, more specific groups, called the OTCID Basic Market and the Pink Limited Market.
Companies listed on the OTCID Market provide certain baseline information, such as financial disclosures, management certification, and a company profile. Companies listed on Pink Limited, however, have limited information available and do not certify compliance with established reporting standards. OTC Markets lists these companies with a yield sign to alert investors to proceed with caution.
Are Pink Sheets and Stocks the Same?
Pink sheet stocks are stocks, meaning each one represents an ownership share in a company. A primary difference between pink sheet stocks and other types of stocks, such as blue chip stocks, is how investors trade them. Investors trade pink sheet stocks over the counter, and other types of stocks on an exchange.
Pink sheet stocks may have much lower valuations than small-cap, mid-cap or large-cap stocks, or they may be newer companies that have yet to establish themselves in the market.
Companies that Use Pink Sheets
There are quite a few companies that use pink sheet stocks, and that includes some big-name, well-known companies that most people would recognize. That said, most companies that use pink sheets likely wouldn’t be recognizable immediately to the average investor.
Pros and Cons of Pink Sheet Stocks
Pink sheet stocks have benefits and disadvantages, both for the companies that list over the counter and for investors. Here are some of the most important pros and cons.
Benefits of Pink Sheet Stocks
From a business perspective, being listed on the pink sheets can save companies resources. Rather than going through the IPO process to become a publicly-traded company, pink sheet stocks circumvent the major stock exchanges and their listing requirements.
Foreign companies may choose the pink sheets to avoid SEC financial reporting rules. Additionally, companies delisted from a stock exchange may seek to trade on the pink sheets OTC market.
For some investors, the possible appeal of pink sheet stock trading may be the potential to pick up stocks at very low prices. Because there are fewer reporting requirements, it may be possible to find a much broader range of stocks to invest in when trading on the OTC pink sheets. However, there are significant risks involved — see the information below.
Disadvantages of Pink Sheet Stocks
Trading on the pink sheets OTC can call a company’s reputation or credibility into question. Investors may wonder why a company is not seeking an IPO to get listed on a stock exchange or why a company has been delisted. That can make it difficult for a company to cement its footing in the marketplace and attract attention from new investors.
Investing in pink sheet stocks involves substantially more risk than trading stocks on a major exchange, since there is less transparency around them and may be limited financial information. That means investors are generally taking on more risk when investing in pink sheets because they may not know what they’re buying. In addition, pink sheet stocks can be highly volatile, and tend to have lower liquidity, meaning it can be more difficult to buy or sell shares.
Pink Sheet Stock Investment Risks
Part of investing means paying careful attention to risk management. Pink sheet stocks can present a much greater risk in a portfolio for several reasons. A major issue with pink sheet stocks is that they can be susceptible to price manipulation or fraud.
Individuals might use shell companies, for example, to trade on the pink sheets for the purpose of laundering money or otherwise defrauding investors. Because there’s so little regulation and transparency surrounding these stocks, it can be difficult to tell if a company is legitimate.
Also, there’s less liquidity surrounding these stocks due to lower trading volume. That could make it harder to sell shares of a penny stock or pink sheet stock.
The pink sheets market and over-the-counter trading in general can be more susceptible to stock volatility. Rapid price fluctuations could generate higher-than- anticipated losses if the price of a pink sheet stock nosedives unexpectedly.
And share dilution can also reduce the value of penny stocks or other pink sheet stocks. Dilution occurs when a company issues more shares of stock, watering down the value of the existing shares on the market.
Where to Find Pink Sheet Stocks
Pink sheet stocks may be offered through certain brokerages and can also be found through the OTC Markets Group. The platform has a stock screener to filter for Pink Limited stocks, as well as OTCID stocks. The filter provides the stock’s ticker symbol, its country of origin, price, and trading volume, among other information.
Investing in Pink Sheet Stocks
Those interested in investing in pink sheet stocks need a brokerage account and, specifically, a broker that offers pink sheet trading. Not all brokers offer this service so you may need to look into different options for where to trade pink sheet stocks online.
Given the high degree of risk involved, it’s important to thoroughly research the background, executives, and financials of a company you’re considering investing in. It’s equally crucial to consider how much you could realistically afford to lose if a pink sheet stock or penny stock gamble doesn’t pay off.
Keep in mind that commissions may apply, and brokerages may charge higher trading fees for pink sheet stocks versus stocks that trade on a major exchange, so it’s important to factor cost in when estimating your risk/reward potential.
The Takeaway
Pink sheet stocks, or OTC stocks, are stocks that do not trade on traditional large exchanges, and instead, trade “over the counter.” Companies that trade stocks on the over-the-counter market may include smaller companies, some foreign companies, and companies that don’t meet the listing requirements of the major exchanges.
Pink sheet stocks are risky and highly volatile since there is less regulation and oversight of them, a lack of transparency and financial information, and the potential for fraud and price manipulation. For investors, it’s very important to be aware of the risks involved.
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FAQ
Why do companies use pink sheets?
Companies may choose to use pink sheets or list their stocks on the over-the-counter (OTC) market for a number of reasons, including if they can’t meet listing requirements set forth by the SEC, or if they don’t want to go through the IPO process. Pink sheet stocks have less regulation and transparency, and they can be very risky and highly volatile.
Why is it called pink sheets?
“Pink sheets” refers to the paper that stock quotes were once printed on, which was pink in color. The term is still in use today even though stock quotes are now done electronically.
What are the risks of pink sheet investing?
Pink sheet investing can be very risky. Risks include potential fraudulent activity, less regulatory oversight, lack of transparency, low liquidity, and high volatility.
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