How to Buy Over-the-Counter (OTC)Stock, (Penny Stock)

There are times where you have to go to the hardware store to get a set of nails and pliers and fix that rotten wood in the garage. You go there because it's faster and you won't have to wait for a few business days for Amazon to deliver them to your doorstep. OTC trading is similar to this.


Well, not that similar but you get the idea. OTC trading is a kind of sale that's by the owner. This means the stock didn't go through any third party before getting to you. Third-party in this context means the major stock exchanges like Nasdaq and New York Stock Exchange (NYSE). These stocks are rarely popular since a lot of people don't know about them. OTC stocks are often owned by startup businesses and growing companies.


In other words, the OTC market is the stock market that doesn't involve the major stock exchanges. These stocks are often exchanged between two parties. That's why they're officially "Over The Counter" Investing in OTC stocks may have its pros and cons. There are also some things you have to know before you dip your toes into this pool. Everything would be discussed in this article so let's get in.


What Are Over-The-Counter Stocks

The Over-The-Counter or OTC stocks are the kinds of securities that are not officially listed on any of the major stock exchanges in the US. These stocks are, most of the time, traded between an investor and a broker.


You might wonder, why do OTC stocks exist in the first place?  There are a lot of micro-companies in the world with shares in the stock market. Most of the time, these stock-owning micro-companies may not meet the requirements of the major exchanges and therefore won't be able to make it on the list. Due to the fact the members of the market who deal in OTC stocks have to carry a record of their stocks to enhance trading, there may be the cause to pay additional fees when investing in these securities.


From here, it is important to know that most OTC stocks have an unpredictable outcome, and most of the time, it's risky to invest in them. Successful businesses have their stock listed on the major exchanges so their outcomes can always be predicted in a way. This is, most of the time, not the same with OTC stocks.


How To Trade OTC Stocks

If you're an investor and you would like to invest in OTC stocks, there are certain procedures you have to follow. The first and probably the most important procedure here is to open an account with a highly trusted brokerage firm. If you're not old-fashioned and you decide to open with an online broker, you have to ascertain that they allow the buying and selling of OTC stocks. Examples of online brokers that allow OTC trading include Zacks Trade, TradeStation, InteractiveBroker amongst others.

If however, you're like most traders and you decide to go with a real-life brokerage firm, you can go ahead and buy or sell OTC stocks. The broker will help you place the order and mark the market for you. This would, in turn, enable you to buy or sell OTC stock.


You can then monitor the OTC market through the Over The Counter Bulletin Board. (OTCBB). Things you can monitor from here include the ask quotes and bid prices on your stocks. In a way, there is no difference between the trading of OTC stocks and normal stocks. Like normal stocks, orders can be limited or completely stopped to allow the implementation of price limits.


To further understand how to trade OTC stocks, you need to understand when and where to sell them. For you to understand this, in turn, you have to learn where to find OTC Breakout. We have decided to recommend the video below for you



When Does The OTC Market Open?

In the United States, the OTC markets usually open from Monday to Friday. As for time, it's the usual 9:30 am to 4:00 pm. As regards the question as to whether the OTC markets would close at any time for lunch, the answer is in the negative. OTC markets do not close for lunch.

Although it is inferred from the first paragraph, we must stress this out again, the OTC markets do not open on weekends. So you can only do your tradings on your weekdays and take a well-deserved break when the weekdays are over. As to whether there are any extended hours, the pre-trading session starts at 6:00 am to 9:30 am while the post-trading session starts at 4:00 pm and ends at 5:00 pm. Liquidity is limited during extended periods so the prices and returns on stocks can be highly unpredictable.


How To Buy OTC Stocks

If you're planning on purchasing the shares of a company that's on the OTC market, there are some steps you need to follow.

How Much

You must determine exactly how much you want to invest. Since it's been said that OTC stocks are riskier than other stocks, you have to be very premeditative.


Broker

An appropriate broker is important if you're going to have a go in the OTC market. Most brokers who trade the normal stocks also allow for the trades of OTC stocks so you just have to make some inquiries. There may be variance in fees though.

Where

You have to make sure you know where to buy your stocks. There are several markets such as The Best Market, The Venture Market, The Pink Open Market, and others. These markets vary when it comes to market caps and liquidity. You have to determine what you want from your stocks and then choose the market to go with. The best market (OTCQX) and the Venture Market are both recommended especially if you're a newbie.

Buy

Fund your account with your brokerage firm properly. If you're confused in any step, don't hesitate to consult the customer services of your broker-dealer so they can guide you on how to purchase the OTC stocks. The broker-dealer can also change the existing quote of a stock once it's determined that the stock is not marketable.


How To Sell OTC Stocks

There's not a lot of difference between the steps in selling a normal stock and the ones in selling an OTC stock.

As usual, make sure you have an account with your brokerage firm and make sure they allow the trading of OTC stocks. For further instructions, make a call or send an email to your broker-dealer and ask them how to transfer the OTC shares to your account. Once you've done that and they've given you a guide on how to send the shares, you can then send the shares and put a sell order on them. To sell well, on the other hand, you have to determine the bid and the ask on shares similar to yours. The prices always vary depending on how high or low the shares are being demanded. The goal is to sell the shares within the spread. (The spread is the difference between the ask price and the bid)

Examples of OTC stocks

 1.  Grayscale Bitcoin Trust (GBTC) is a company focused on the trading of cryptocurrency. Its current yield is 0.00% with its market cap reaching as high as $37 Billion.

 2. Tencent Holdings Ltd (TCEHY) is a communications company. Its current yield is 2.24% and its market cap is $577 billion.

 3.  Hertz Global Hldgs (HTZZ) is an industrials company with a market cap of $15 billion and a yield rate of 0.00%


5 Best Brokers For Over-The-Counter OTC Stock Trading

BROKER

PENNY STOCK PRICING

Fidelity

$0 per trade

TD Ameritrade

$6.95 per OTCBB trade

Charles Schwab

$0 per trade

TradeStation

$0 per trade (for the first 10,000 shares)

InteractiveBrokers

$0.005 per share


Fidelity

Fidelity is an online broker that offers $0 trades that also include penny stocks. With its customer number going as high as 32 million and an easily accessible mobile app, it's no wonder it's investors' favorite.

Ameritrade

Although it charges a fee of $6.95 for penny stock trading, it offers a very wide and comprehensive selection of trading tools. Although its fees are high, its services are worth it.

Charles Schwab

One of the best things about this broker is that it doesn't charge an additional fee for any stock under $1. Its selection of research and trading tools is also top-notch. This is why it made it to the list.

TradeStation

Like other brokers, TradeStation offers a wide array of trading tools and an easily accessible trading platform in general. It offers no additional fee for any trade less than 10,000 shares ($0.001 per share after the 10,000 mark).

InteractiveBroker

InteractiveBroker won't be our first choice when it comes to trading fees but what makes it exceptional are its lower margin rates and a wider selection of penny stocks than other brokers

There you have it. This article should have cleared up any questions you might have about OTC trading.OTC Trading is said to be riskier than normal trading but what's life without risks? So, go ahead, take that risk. Make that trade and have a good day.