Entering the world of OTC stocks, also called penny stocks, without proper knowledge of financial stipulations and terminologies is a very reckless act. In your initial sessions, you will have to deal with diverse principles and terms that may confuse you.
Understanding penny stocks requires both time and effort. Once you have understood the basics and learned the various strategies, the tremendous potential of these stocks will eventually become apparent.
OTC stocks or over the counter stocks are sold by newly formed or small companies that are not yet developed enough to comply with the basic requirements of being listed in major trade markets or the stock exchange. These stocks are frequently traded through brokers or dealers who interact with the market maker firms directly.
The OTC stock’s two major markets are the OTCBB or over the counter bulletin board and the pink sheets. All of the stocks that are traded in these markets are labeled as OTC stocks.
The OTCBB is an electronic quotation system that exhibits volume trading information, last-sale prices and real-time quotes for OTC stocks and any other securities that are not found in the NASDAQ or other registered stock exchanges. On the other hand, the Pink Sheets is another electronic quotation system that was developed by Pink OTC markets. The Pink Sheets unveils OTC quotes from broker-dealers.
It is a fact that OTC stocks have highly benefited from the rapid progression of technology. These benefits eventually lead to countless people gaining access to more data and knowledge on this particular kind of stocks. Numerous newly established companies have chosen to trade OTC stocks in preparation for their listing in the registered stock exchange. These companies are using the OTCBB and Pink Sheets as a stepping-stone to be exposed and better known in the financial market.
Because of advanced information technology and the capabilities of the internet, buying and selling OTC stocks online can be effortless. Using the internet as the main tool, it is possible for broker-dealers to let you interact with the market makers online.
OTC stocks are more risky than regularly traded stocks from renowned companies. It is always a possibility that companies who have issued these stocks may be in distress and are having financial difficulties that may lead to bankruptcy. Even with these dilemmas being obvious within the company, investors who are planning to purchase their stocks will not have the slightest idea of their imminent insolvency because the OTCBB and pink sheets does not require companies to submit their financial records.
The best way to oppose this possible risk is meticulous research and personal study of the companies that have issued the stocks that you plan to acquire. Investigate the background of the company, scrutinize its financial track record and present investment ranking; this way you will have a good idea of their current status.
Personal research on promising companies will give you more detailed information and may improve your trading skills. Financial newsletters and websites with up-to-date information on OTC stocks will be very useful. Employing the services of financial experts who can be consulted on different strategies and investing methods is also beneficial. It is very important, however, to make sure that your sources are credible.