For someone who is not very well-versed with financial terms and jargon, trying to jump into investing in OTC stocks is a hard thing. You will have to deal with a lot of different terms and principles which might be confusing in the beginning, but as you get the hang of it, it will be easier and more manageable.
This article will focus on OTC stocks or over the counter stocks. Read along and get to know the basics of this particular kind of stock.
Let us first define the term. OTC stocks or over the counter stocks are being offered by startup companies who have not yet developed to meet the basic requirements of being listed in the stock exchange, or other major trade markets. These stocks are usually traded through broker-dealers and they will in turn interact with the market makers directly.
Thanks to high-end information technology and the power of the internet, you can even purchase and sell stock online. Broker-dealers can even let you interact with the market makers online.
The two major markets which trade OTC stocks are the pink sheets and Over the Counter Bulletin Board of (OTCBB). All the stocks traded in these two markets are considered OTC stocks. Pink sheets is an electronic quotation system developed by Pink OTC Markets which discloses quotes from broker-dealers when it comes to over the counter securities. On the other hand, OTCBB is an electronic quotation system overseen by the National Association of Securities Dealers, Inc. or NASD which displays last-sale prices, volume trading information and real-time quotes for OTC stocks and securities which are not listed in the NASDAQ or other registered stock exchange.
OTC stocks are benefiting from the advancements of technology, which leads more people to have access to information about this specific kind of stock. Also, more and more startup companies are choosing to trade OTC stocks in preparation for the time when they will get listed in registered stock exchange. These companies use Pink Sheets and OTCBB as a stepping stone of being more known in the financial market.
OTC stocks also offer a higher risk than regularly traded stocks from well-known companies. For one, companies who are issuing out OTC stocks may be suffering from financial difficulties or on their way to bankruptcy, but the people who want to buy these OTC stocks won’t have any way of knowing because Pink Sheets and OTCBB do not require companies to submit financial records. The best way to counter this specific risk is to research on your own. Find out the background of the company, its financial track record and current investment standing to have a better grasp of how they are doing.
Now that you know the basic information when it comes to OTC stocks, remember that you will still learn a lot if you research on your own. Read the different financial newsletter and websites available to have updated information about the subject. You should also make sure that your sources are a credible. It can also help if you have a financial expert to talk about the different trends and who could give you investing tips as well.
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