Over The OTCBB and Pink Sheets
OTCBB and the Pink Sheets will be the two forms of penny stocks you will come across. The primary difference between your two is that OTCBB stocks must file with the SEC and the pink sheet stocks aren't. Some traders won't trade pink sheets for this reason, those traders are passing up on some very nice opportunities. Even Warren Buffet has been recognized to search for undervalued companies in these markets.
Beware, trading in the OTCBB and Pink Sheets isn't for everyone. Usually the stocks are illiquid and also have a big spread between bid and have. Additionally, there are plenty of companies which are completely worthless and can try to masquerade as great companies while diluting their shares. Another be worried about these stocks may be the fraud involved or "pump and dump" schemes where traders or company insiders have their stock "talked up" on bulletin boards or in boards. The posters make unrealistic statements about where in fact the company and the purchase price per share 're going, while selling you their shares. The purchase price per share then plummets. It is possible to avoid many of these problems with homework on your own part. Take time to read filings, call the business and investigate thoroughly. This investigation should happen with OTCBB stocks and Pink Sheets. Usually do not be prepared to find all you need to learn in the filings.
After you discover a stock that you intend to purchase, you pull up the purchase price and find that there surely is a 30% difference between your "bid" and "ask" price. The bid being just what a trader is ready to purchase a stock for and the ask just what a trader will sell the stock for. Finding spreads of 30% or even more is quite common in these markets. If the stock is thinly traded with a large spread, you will need to buy on the bid, or perhaps a small percentage above the bid. If the stock is moving fast due to news or an announcement, you will likely be required to buy at the ask. Once you place your order to get on the bid or slightly above, it might take quite a long time to obtain filled. You might never get filled. At this period patience is really a virtue. You may even desire to try buying shares somewhere within the bid and have.
If you did your homework well and the business announces very good news, such as for example winning a higher paying contract with IBM, the stock will remove, gaining 100% or even more before others may also call their broker to get shares. This is why for buying these markets.
I usually do not advise that you place all your money in this type of "RISKY, High Reward" market, but spend time investigating very cheap stocks and you'll be rewarded greatly. Remember: exercising homework is important for several investment decisions in virtually any market.