Investing in OTC Stocks

OTC or over the counter stocks could be considered as the sibling of stocks traded in NASDAQ or NYSE. Simply put, these stocks are not traded at NASDAQ and NYSE because they are not able to meet the financial requirements to become public and be part of these trading platforms. The stocks that you will be able to purchase OTC are very affordable – usually less than $5 per share.

But even though the price per share is relatively affordable, it does not mean that you can go along with the process very easily. It could be very easy for an investor to be lost in the processes and lose everything they have in OTC trading. Careful understanding should be in place before any trading could be done.

OTC stocks are traded in two platforms – Pink Sheets and OTCBB or Over the Counter Bulletin Board. Trading in Pink Sheets and OTCBB are no different but the companies that you will be able trade with are different.

Pink sheets are a little bit looser in accepting companies. Companies are not required to forward any financial papers to the administrators of Pink Sheets because the company is too small. They are often employed by start-up companies who wanted to gain interest and financial support from investors.

The companies that trade in OTCBB are almost the same as in Pink Sheets but they are usually the next step towards being recognized in NASDAQ. In OTCBB, you should be able to find companies that sell their shares in very competitive prices just to get investors.

OTCBB is controlled by the NASD or National Association of Securities Dealers. They control which company that should be trading in OTCBB for security purposes.

OTC Trading Process

Companies in OTC trading are represented by market makers. They are practically brokers of the companies who wanted to gain the attention of investors. If you wanted to trade with a company, you have to deal with the market maker.

But you cannot just go ahead and talk to the market maker directly. Another broker is recommended to deal with the market maker. The process would be faster and you do not have to deal with a lot of paper works.

OTC trading is basically enabled by the internet. Real time prices of shares of companies listed in OTC could be obtained online. Through a simple phone call, you can start trading with the broker. The broker doesn’t even need to be in the trading area as the information could be relayed to the market maker online.

OTC Trading Advantages

The best part of OTC trading is that you do not have to spend a huge amount of many to be part of OTC trading. As the shares are priced in less than $5.00, you should be able to be part of small yet very promising companies.

The shares could even improve and you can sell them at a higher price to other investors that have seen the opportunity in investing in an improving company. This is also the opportunity to invest in a very promising company which could become a well recognized name in the industry.

OTC Trading Disadvantages

Unfortunately, OTC trading is considered as a high risk investment option. That means you are able to earn considerably but you are also risking your available funds. The company could be a huge success or a complete blunder through different reasons and some of them are not even controlled by the company you are investing with.

OTC trading is a relatively small investment option but could be a source of huge earnings. Although it is a high risk investment plan, you can excel in OTC as long as you consider the internal and external factors that will affect the company in the future.