Over-the-counter stocks are not listed on organized stock exchanges and are traded between brokers and dealers using electronic technology. In the US, there are four common outlets for buying and selling these stocks, including NASDAQ’s National Market and Small Cap Market, the OTC bulletin board, and Pink Sheets. These stocks are often associated with small or non-compliant companies and carry higher risks. Investors should carefully consider the financial condition and performance of the issuing company before making a purchase.
An over-the-counter stock is a stock option that is not listed on any of the organized stock exchanges and, therefore, is not traded on those exchanges. Instead, shares of this type are bought and sold between brokers and dealers, usually using electronic technology to do so. In the United States, there are four common outlets where you can buy and sell over-the-counter stocks with the help of a broker.
Two of the outlets where stock listings and trading take place are associated with NASDAQ. Known as the National Market and the Small Cap Market, these two places focus on specific classes of stock options. Some financial professionals question whether domestic and small-cap markets should be identified as outlets for over-the-counter stocks, since NASDAQ is considered a stock exchange and dealer network. The domestic market deals with large stocks that are not traded on most other exchanges, with an emphasis on liquid stocks.
The smallcap market focuses on over-the-counter stock options that are issued by companies considered promising in their respective industries. Stocks traded through this market are often relatively unknown today, but show great promise of becoming more prominent over time. Investors often look to the small-cap market as a way to identify promising stock options before the vast majority of investors discover them.
A third medium is known as the over-the-counter bulletin board or the OTC bulletin board. This store offers a wide range of electronic quotes on current activity for various types of stocks over-the-counter, but tends to have a wider range than the domestic or small-cap markets. One last option for identifying and trading over-the-counter stock options is to use Pink Sheets, known for offering lower-tier stock information. With this output, there is somewhat limited distribution when it comes to the availability of electronic quotes. Most companies listed on this outlet are not required to file and update their financial data with the Securities and Exchange Commission.
Over-the-counter stock options are usually connected with companies that are somewhat small, or for some other reason do not meet the criteria set by most of the larger exchanges. Brokers and dealers trade these stocks through networks that are often extremely efficient. Investors often find great deals on these networks, although there are sometimes greater risks associated with the credit ratings of companies listed on these networks. As with any stock purchase, it’s a good idea to look at the overall financial condition of the issuing company, as well as the overall performance of the stock, before making a purchase.
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