How Do I Invest in Over-the-Counter Stocks?

Over-the-counter (OTC) stock trading is not the same as trading on the New York Stock Exchange or Nasdaq. This is because OTC stocks are not traded on exchanges. Over-the-counter (OTC) investments can be purchased from market makers who list stocks and bonds in their inventory and offer them directly to buyers. There are some online brokers that allow OTC trading. Offline full-service brokers can place client orders.

If you want to buy and sell over-the-counter stocks, you won't find them on a regulated exchange. They are mostly traded over-the-counter because they do not meet the strict listing standards of major exchanges.

Many over-the-counter drug companies are considered promising because they are producing new technologies or products, or engaging in exciting research and development.

Several other OTC firms were listed on exchanges for some time before delisting. If a stock's price falls below $1, it can be delisted. If the company remains solvent, the shares must be traded elsewhere.

How OTC Stocks Are Different From Listed Stocks

Investors who gravitate toward the idea of acquiring a large number of stocks for a relatively small investment have traditionally been the biggest fans of penny stocks. If the company is successful, investors make a lot of money.

These companies are not required to provide as much financial, business or product information as companies listed on regulated stock exchanges. Make sure you do your research and don't just take their word for it.

Trading over-the-counter stocks

For investors who want to trade OTC securities, opening a brokerage account is the first thing to do.

Before choosing an online discount brokerage firm, make sure the firm allows OTC trading. IB, Zacks Trade and TradeStation are companies offering this service.

To trade OTC stocks, you need a real brokerage firm. A broker places an order for the stock you want to buy or sell to a market maker.

You can track bids and offers at any time through the over-the-counter bulletin board.

From an investor's perspective, the process of buying and selling stocks is the same. Price limits can be implemented as usual by placing limit orders or stop orders.

Both stocks and bonds can be traded over-the-counter.

Differences between over-the-counter stocks and other types of stocks

Common stock that potentially trades above $15 on the NYSE or Nasdaq. Over-the-counter (OTC) stocks priced below $1 may have more uncertain financial futures and are generally considered speculative and extremely dangerous.

Microsoft (MSFT), Tesla (TSLA) and Meta (META) all started trading on the NYSE or Nasdaq above $10.

Can investors short OTC stocks?

While over-the-counter securities can be sold short, there are risks.

Trading volume in these stocks is usually fairly modest. So you are illiquid. If investors try to cover unprofitable short positions, they could be in trouble.

Pump and dump scams also target over-the-counter securities. Scammers are promoting thinly traded stocks via email and social media.