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In the past the term pink sheets in the financial market referred to the color of paper which quotes were made on. Today, pink sheets are an electronic quotation system for securities sold over the counter; these securities are called penny stocks.

The are very different from NASDAQ or the New York Stock Exchange (NYSE). Companies that are listed on the pink sheets may not meet the requirements set by NASDAQ or NYSE, therefore they have no listing requirements.

As a clarification, Pink Sheets is not a registered stock exchange. Companies who are listed in the stock exchanges need to submit qualifying documents to be considered listed. For companies who are listed in pink sheets, they are not required to have a financial history. Through that, companies can raise capital without going through the hassles of being publicly listed. This is where companies, who could not get in the stock exchange, trade and buy stocks.

The majority of the companies listed on the pink sheets are closely held and thinly traded. They also do not file their financial statements with the SEC, making it hard for people to have access to their financial information.

It is already a given that companies listed in pink sheets have greater risk than those that are publicly listed with the stock exchange. These companies can opt not to disclose pertinent financial information about their company because they are not required to do so.

The one main advantage that attracts people to invest in penny stocks and pink sheets is the low cost of investment needed. Penny stocks, which are trades on the pink sheets, have their stock value pegged at $5 and below. This is also the reason why it is very risky. The key to counter such risks and translate it to a high return of investment is to research about the company that you are interested in. Since Pink Sheets will not be able to disclose key financial and investment information about the company, take it upon yourself to do the research about the financial standing of the company as well as the background.

Investing is a gamble; you may not know it, but it is possible that the company you are investing in will be the next big thing. If this will happen in your case, investing in high-risk penny stocks can bring in a large return of investment for you.

If your company is interested in getting listed on the Pink Sheets, you must have a broker to quote the stock. Your broker must be a member of the NASD or the National Association of Securities Dealers. If your company is already listed on Pink Sheets, it will remain there while your stock is being quoted. It is possible that a stock that is still quoted in Pink Sheets may not exist anymore, so as a buyer you must be able to practice due diligence and research before making any decisions.

Pink sheets and penny stocks are very high risk. As an important tip, do your research well and learn as much as you can before you actually invest in penny stocks.