What Investors Should Know About the Over-the-Counter Market

Whether or not you’ve ever actually invested in any over-the-counter (OTC) stocks, or if you plan to in the future, it can be something worth knowing about if you’re in any way an investor or you’re interested in learning more about different areas of finance.

OTC stocks are also called pink sheet-listed companies, and there some differences between the stocks and what you would see traded on the New York Stock Exchange, for example. Despite the differences, there are similarities as well, and there are a lot of things investors find appealing about OTC stocks.

These OTC stocks are what people are trading when you hear about penny stock trading, and the following are some fast facts any investor should know.

Listing Requirements

As compared to the effort it takes to be listed on conventional stock exchanges, it’s relatively easy for companies to be listed as pink sheet companies. All they need to do is submit a form with current financial information, although the level of transparency required isn’t stringent.

These companies are typically small and tightly held, which is one of the biggest ways OTC stocks are different from stocks traded elsewhere.

Pink sheet listed companies aren’t required to fill out things like annual reports, so it can take a lot of effort on the part of investors to find out what they need to know.

What Are the Advantages?

Of course, there are advantages to investing in these companies listed on pink sheets, which is why they continue to exist.

The primary advantage is they’re inexpensive, which is why this kind of trading is often referred to as penny stock trading. Shares don’t necessarily cost a penny, but they do often cost less than $1.

There is a lot of volatility in this trading market, which can mean risk, but it can also mean substantial returns that you might not be able to get otherwise.

When you invest in OTC stocks, you’re giving yourself the opportunity to potentially get in early on a small-but-rising company.

How Do You Buy an OTC Stock?

OTC stocks aren’t listed on the major exchanges, nor are they part of a central exchange, so instead, market makers have an inventory of securities.

Investors can find the pricing for these stocks on the Pink Sheets as well as the OTC Bulletin Board.

Once you’ve done your research, you should open a brokerage account that allows for OTC trading. That broker will then go directly to the market maker and get the transaction completed.

Before you start investing in OTC stocks, one of the most important things to remember is that it’s essential you do your own research. Since so little is listed about these companies, it’s up to you as the investor to do the legwork and make sure you’re making the right decision.

Consider things such as whether or not companies are sound, and if they were previously listed on the major stock exchanges and then de-listed, make sure they’ve properly addressed the financial issues that led to their de-listing.

Investing in OTC stocks can be challenging and risky, but at the same time, it can also be rewarding if you prepare yourself.

Author:.

Carmelo is a marketing writer and blogger helping small and medium size businesses craft winning content strategies. She's always scouting the web for new social media strategies and is slightly addicted to apps. When not tapping the keyboard, you are likely to find her in the park playing with her uncontrollably friendly Irish setter or trying out new vegan recipes.

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