Penny stocks are low-priced, small-cap securities, typically trading for less than $5 per share. They are often issued by small or emerging companies and are considered high-risk investments due to limited liquidity, lack of transparency, and vulnerability to market manipulation. These stocks usually trade over-the-counter (OTC) through platforms like the OTC Markets Group, including pink sheets, or on smaller exchanges.

Pink sheet stocks refer specifically to securities traded on the OTC Pink market, one of the tiers managed by the OTC Markets Group. Many penny stocks fall under this category, as they meet the minimal regulatory requirements for listing. Unlike major exchanges such as the NYSE or NASDAQ, pink sheet stocks are not subject to stringent financial reporting or regulatory oversight, making them more speculative.

The overlap lies like the companies: small, often volatile, and less accessible to detailed financial data. While not all penny stocks trade on the pink sheets, and not all pink sheet stocks are penny stocks, the two are closely linked. Investors drawn to penny stocks for their potential high returns must approach with caution, conducting thorough research to mitigate risks associated with these speculative assets.