Pink sheets is the informal designation for an electronic quotation system known as Pink Quote from Pink OTC Markets. It is a system that displays quotes for over-the-counter (OTC) securities. The companies that are traded on this system can't be traded on the stock exchanges. They're usually small, newly-formed companies that are thinly-traded, companies that are bankrupt, or large companies that have recently been delisted from an exchange. 

Difficulties

Pink Sheets are difficult to trade for the average investor because:

  1. There is very little transparency. Financial information isn't required to be disclosed regularly other than when they are first entered into the system. This makes information for investing difficult to find. 
  2. A lack liquidity. They are thinly traded. The lack of buyers makes selling difficult. 
  3. Prices can be easily manipulated due to the small amount of cheap stock on the market. It's hard to sell a substantial amount without driving down the price.
  4. Analysts don't cover Pink Sheet stocks because of the general lack of recent information. Many also have spotty histories, no histories at all, or are approaching bankruptcy. Some companies are scams or might not even exist.  

Pink OTC Markets has introduced two market tiers, OTCQX and OTCQB, that are based on timely reporting in an effort to bring more differentiation to these stocks.

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