page title icon Pink sheet stocks: What they are, why to trade them, and how to get started

October 16, 2022

Pink sheet stocks had their moment on the big screen not so long ago in Martin Scorsese’s The Wolf of Wall Street. In one of the most memorable (finance-related) scenes in the film, Jordan Belfort, as played by Leonardo DiCaprio, discovers the insane profit potential of trading pink sheet stocks.  

The movie doesn’t portray pink sheet stocks in the best light. Although Belfort makes a fortune trading them, he does so by exploiting some of the disadvantages of trading the pink sheets— large commissions and spreads, pump and dump stock scams, and the wealth of disinformation that often surrounds pink sheet companies.

In reality, Jordan Belfort went to jail for his exploitation of the pink sheet market and had to pay restitution to investors he defrauded, and his outrageous exploits changed the industry for the better. 

Now, thanks to increased regulation and market transparency, the pink sheet market is still risky, but not as prone to outright fraud. 

You probably won’t make so much money that you can afford to crash land your own helicopter into your Olympic-sized pool on one of the largest estates on Long Island, but there’s money to be made in pink sheet stocks for the right investor. 

For reasons I’ll get into later, pink sheet stocks do carry more risk than your standard stock traded on the New York Stock Exchange or other major stock exchanges, so you always need to assess whether the potential reward is worth the significant risk.

What are pink sheet stocks?

Pink sheet stocks are any stocks traded over the counter (OTC), which means they aren’t listed on the New York Stock Exchange (NYSE), NASDAQ or any other major exchanges. Instead, you can find pink sheet listings through companies such as OTC Markets Group.

The name pink sheets derives from the good old days when information was circulated via actual physical paper rather than on- screen. The quotes for the stocks that weren’t listed on large exchanges were printed up on pink paper. 

Although more and more traders refer to them as OTC stocks, the term pink sheets has survived into the digital age, even if the distinctive pink paper is a thing of the past.

In a lot of ways, pink sheet stocks work just like normal stocks. You can buy and sell pink sheet stocks through most online brokerages 

What types of companies trade off the pink sheets?

Companies trading on the pink sheets market come in all shapes and sizes and can be in different stages of their corporate life cycles. 

Foreign companies

There are the billion dollar international foreign companies like Nestle and Nintendo that trade in the over-the-counter market, mainly because they want to avoid the accounting and regulatory costs of listing themselves on a major exchange in the US.


There’re also a lot of start-up companies that opt for OTC markets in the beginning as they haven’t yet reached the requisite size or level of financial accountability to seek a listing on one of the major exchanges.

Falling stars

Then there’s the fading corporations who’ve found themselves delisted from one of the major exchanges because their stock drifted below the minimum or they failed to meet other regulatory requirements. They may be on one side or the other of bankruptcy proceedings but can sometimes find new life trading as pink sheet stocks.

Local companies

You can also find local companies that may have healthy balance sheets and a successful local footprint, but trade off the pink sheets while trying to build their brand on a national level.

What all these disparate types of companies have in common is that, since they trade as pink sheet stocks, they are not subjected to the uniform regulations of the Securities and Exchange Commission. They’re not required to submit annual reports, prospecti or other financial data, which makes buying pink sheet stocks substantially more risky than buying off a regulated exchange.

Categories of pink sheet stocks

For some established pink sheet stocks like Nintendo or a company that was recently delisted from a major exchange, there’s a great deal of public information available. For other pink sheet stocks like the brand new start-up or the local business, there can be very little if any information available.

OTC Markets Group helps traders and investors categorize pink sheet stocks based on certain listing requirements and the quality and quantity of information available. They break their OTC listings into three groups.


Companies labeled OTCQX represent the most transparent pink sheet stocks and include foreign companies like Nintendo and Nestle as well as other “established global and growth companies.”

OTCQX companies are expected to be in compliance with US securities laws, provide audited financial statements, and their corporate leadership is held to a high standard.


Pink sheet stocks listed in the second tier by OTC Markets includes more up-and-coming companies in the “entrepreneurial or development” stages, who must also provide audited financial records.

To maintain their listing in this group, OTCQB companies must be verified every year by the OTC Markets group and their management team must be vetted and certified.


These are the pinkest of the pink sheet stocks, the real wildcards. Basically, any OTC security for which there is a market falls into this catch-all category. Just about the only way a company falls out of this category is if you can’t find a single broker-dealer willing to quote a price.

Caveat Emptor 

Although it’s not an official category, OTC Markets also label some pink sheet stocks with the dreaded “Caveat Emptor,” which is a fancy way of saying “buyer beware.” They actually go as far as to mark the listings of these stocks with a skull and crossbones on their website. 

There’s a number of reasons a company could end up with a skull and crossbones, but none of them are good. Something very shady is probably going on. There may be questions surrounding the company’s management or the stock price is being actively manipulated. Unless you’re the one doing the manipulation, which I don’t recommend, it’s probably best to steer clear.

Pink sheet stocks vs. penny stocks

Not all pink sheet stocks are penny stocks and not all penny stocks are pink sheet stocks, but there is a large overlap between the two groups. Of the over 11,000 companies listed by the OTC Markets Group, the vast majority are penny stocks.  

There are some companies such as Nestle that are enormous international companies that have decided against being listed on a major exchange in the US. This means they are technically a pink sheet stock. Nestle made almost $100 billion last year and has a market cap of more than $300 billion. Clearly not a penny stock. 

There are also a lot of companies considered penny stocks that trade on one of the major exchanges, despite small market caps and low share prices. Since they are not OTC stocks, these penny stocks are definitely not pink sheet companies.

But these examples are the exceptions that prove the rule. 

Advantages of trading pink sheet stocks

Considering the wide overlap between pink sheet stocks and penny stocks, you may want to read my more in-depth analysis of the advantages of penny stocks here {LINK} because many of the advantages are the same. 

Stocks trading off the pink sheets are at a distinct disadvantage to their more established cousins who are listed on the big exchanges. Many investors won’t trade pink sheets simply because of the stigma attached to over-the-counter stocks. That can actually be an advantage for the savvy investor. That means there’s far more opportunity to find undervalued stocks if you trade over the counter than if you stick to the NYSE or NASDAQ.  

As I mentioned, many pink sheet stocks are low-priced stocks which means you can afford to take much larger positions. Obviously that’s a huge advantage – if you pick the right stock. And since most pink sheet stocks are issued by small companies, you can take a much larger position relative to the size of their market cap.

Pink sheet stocks tend to be very volatile, especially if you’re dealing with very small companies. If you are a skilled momentum trader and can time exactly when to get in and when to get out, volatility is your best friend. 

Finally, one of the most distinct advantages of trading off the pink sheets is that you can potentially get in on the ground floor of some very exciting new companies. Many companies that are just getting started can’t immediately access the larger exchanges and start off on the pink sheets. 

Risks associated with pink sheets stocks

One of the biggest risks of trading off the pink sheets is your own investor psychology. Too often traders buy pink sheet stocks with a get-rich-quick mentality. If that’s your aim, you should realize that the odds are heavily against you. 

Yes, you can find exciting companies making exciting innovations on the pink sheets, but often they trade over the counter for a reason. Before you dive headlong into a long position on some exciting new business, ask yourself why it’s only available over the counter and why it’s available so cheap. If you don’t know, don’t invest. 

Often, pink sheet stocks trade in response to breaking news items, but you have to question the veracity of the news as well as the source before you buy into an over-the-counter offering. As I mention in the next section, social media has given rise to new variations of the “pump and dump” stock scheme, so make sure you don’t fall victim to someone who is simply hyping a stock for their own gain. 

Buying and selling pink sheet stocks requires a high risk tolerance. There’s a reason OTC Markets Group puts a skull and crossbones next to so many stocks that they themselves list. 

Lack of concrete financial information, thinly traded stocks, and frequent stock manipulation mean you’re putting your money at significant risk.

A general rule of thumb with pink sheets is don’t risk more than you can afford to lose. Most traders put aside a certain percentage of their portfolios to invest in high risk stocks. That’s my strategy and I trade pink sheet stocks with the speculative part of my portfolio.

In short, trade pink sheet stocks with a degree of caution or with a defined strategy in mind. 

Pink sheet stocks in the age of social media

Social media has opened up a whole new avenue for the transfer of information and this is having a profound effect on stock markets, pink sheets in particular. 

Since there‘s already a lack of news and financial information available for many pink sheet stocks, investors turn to more and more dubious sources to find information about particular companies. This can lead many to seek information on social media, where opinions and false narratives can spread like wildfire, dramatically impacting a stock’s price. 

Other investors (or fraudsters as the case may be) use social media to lead coordinated efforts to push up the price of a particular pink sheet stock that they hold. They do this by either pushing false news items, or by simply encouraging people to buy for the very sake of driving up the price. They then sell after enough people buy in and leave the other investors who bought in later to deal with the consequences as the stock falls back into its normal range.

It’s a new, modern twist on the classic pump and dump scheme whereby someone holding a position in a company talks it up to anyone willing to listen, waits until enough people buy in, and then dumps it.

Consider the case of SpectraScience Inc. As Bloomberg News reported, the Securities and Exchange Commission (SEC) stepped in and stopped trading on the company after noting that they had not filed any financial reports in several years and did not even have a working phone number. 

And yet, the stock price had risen more than 600% in one month. The source of the surge, the SEC discovered, was a “coordinated attempt” on social media to boost share prices. The stock is now worthless, and those who didn’t get out before the SEC cessation lost their entire investment.

The moral of the story is to seek confirmation for any news you see circulating about pink sheet securities on social media, be it Twitter, Stocktwits, or any other similar platform. Always question the motives of the person sharing the content. They may be advising you on a good time to buy, but will they be so forthcoming when it’s time to sell?

How to start trading off the pink sheets

Buying and selling pink sheet stocks is as simple as finding a broker to handle your transactions. 

I will be reviewing the best online brokerages for pink sheet stocks soon, but in the meantime, keep the following in mind when selecting your brokerage.

  1. Do they trade pink sheets? 

Almost all major online brokerages access over the counter markets and buy and sell OTC stocks, but double check just to be on the safe side.

  1. Commissions

Although a lot of online brokerages are now offering commission-free trading, pink sheet stocks work a little differently. OTC markets aren’t as liquid as the larger exchanges, which drives up your per-trade costs. Make sure you know exactly how much your brokerage will charge before you open an account and begin to trade.

  1. Trading platforms

Check out the trading software beforehand and make sure you’ll be comfortable executing trades and accessing information. Many brokerages allow you to open up dummy accounts before you begin trading with real money, and I strongly urge you to do so just to get a feel for the programs you’ll be using. This will also give you a chance to test your strategy for trading pink sheets.

  1. Trader support

Good online brokerages support their traders in a number of ways, be it through education, good customer service and access to their stock screening tools and research departments. Other brokerages just want your commission and don’t care about your development as a trader. Find a brokerage that wants to support you for the long term. 

  1. Compliance

Make sure you are dealing with a brokerage that’s in good standing with the Financial Industry Regulatory Authority.  All the big name brokerages are, but if you are going with a smaller brokerage, make sure they are in compliance with all regulatory agencies.

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