Pink sheet stocks are companies listed by the National Quotation Bureau but not necessarily registered with the Securities and Exchange Commission. These are illiquid, small companies that do not need to report timely financial information. The shares are subject to manipulation and investors should use extreme caution when buying or selling shares.
- Skill level:
- Moderately Challenging
Decide in advance what minimum price you will accept for your shares. Read and understand the various levels of Pink Sheet stocks (see Resources). Make certain the stock you wish to sell is listed on the Pink Sheet listings. Understand that Pink Sheet stocks do not actively trade and that information about the company may be incomplete or outdated.
Consider calling the company's executive office and see if their is any recent news that may affect your decision to sell. Company management will often be glad to discuss recent company activities.
Open a brokerage account at one of the discount brokers that will trade Pink Sheet stocks. Not all brokers will trade these stocks and few major firms will accept Pink Sheet orders. Sign, date and fund the account. Deposit the shares of stock at the brokerage and enter your order. Use limit orders, never use market orders. Limit orders restrict the broker from selling stocks only at your price or better.
Do not sell Pink Sheet stocks short. Your broker probably cannot borrow shares necessary for delivery. Buying the stock to later close the short trade can be difficult as market makers do not hold large inventories of stock. Understand that if a short position is established and competing brokers find out they may artificially raise the price of the stock. This is known as a short squeeze.
Sell shares judiciously. If you own a substantial number of shares expect to trade in small amounts spread over weeks or even months. Never offer more than a few hundred shares for sale at a time. Never enter market orders. Market orders will usually trade at a large discount to the current price. Use limit orders for every sell order.
Tips and warnings
- Understand that Pink Sheet stocks offer poor liquidity.
- Do not use market orders. Market orders may vary from the last quote in the Pink Sheets by 30% or more.
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