How To Buy Over-The-Counter (OTC) Stocks

by OTC Financial | Last Updated: 12 months ago
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To buy over-the-counter (OTC) penny stocks, you first need to find a company you trust in investing.

You may have decided on a penny stock you are interested in already. If not, you can find the most active penny stocks from the OTCMarkets.com website.

This page will show you the most active stock tickers updated daily.

Next, you want to research the company and learn how it’s doing. Find an online broker that has the lowest commission fees and trading costs.

Discount broker examples include Fidelity, Charles Schwab, TD Ameritrade, and Interactive Brokers.

Open an account with the brokerage firm of your choice and deposit some money into your account.

To buy stocks, you will need to place your order by phone or go online to buy shares of the companies stock.

Keep an eye on your stocks, as they fluctuate based on market conditions. Keep yourself updated with company news to know when is best to sell off your shares.

Repeat this process with more companies to increase your portfolio size. Track your progress inside the history of your online brokerage account.

You can also use a free online stocks app such as Yahoo Finance Mobile App with a portfolio tracker.

What Are Over-The-Counter (OTC) Stocks

Over-The-Counter (OTC) stocks have ticker symbols the same as the major U.S. exchanges such as the Nasdaq, New York Stock Exchange (NYSE), and American Stock Exchange (AMEX).

OTC stocks are generally penny stocks under $1 in price.

Companies included cannot meet the requirements needed to satisfy the major stock exchanges.

How To Buy OTC Stocks

PVSP – Pervasip Corp (Penny Stock Example – OTCBB Market)

What Is The Over-The-Counter (OTC) Meaning

The meaning of the Over-The-Counter Bulletin Board (OTCBB) is a trading exchange service. It gets its data from the Financial Industry Regulatory Authority (FINRA).

Trade information provides members U.S. Stock trade prices to make informed investment decisions.

The term “Over-The-Counter” refers to how the security trades because it does not happen in a centralized location like a stock market exchange floor.

Parties can buy and sell stocks privately through networks run by intermediaries such as brokers and dealers.

These broker-dealers purchase their inventory of securities to trade with customers on the platform.

The OTC markets have been around for a long time, but they’re still not as well-known or popular as traditional stock exchanges.

What Are The Different OTC Markets Tiers?

OTC Markets Group Inc regulates securities categorized into three different markets.

The three markets are OTCQX (The Best Market), OTCQB (The Venture Market), and Pink Sheets (The Open Market).

OTC stocks are companies traded in one of the three markets.

Each company is listed depending on the quality and quantity of its ability to provide shareholders with public news.

  • The Best Market (OTCQX) is the highest tier, companies must be current on all filings and should not be in bankruptcy or be a shell corporation.
  • The Venture Market (OTCQB) is the second-highest tier, the companies stock price must always be $0.01 or higher.
  • The Open Market (Pink Sheets) has companies that may be shell companies, bankrupt, or late on filings. Once companies become current on filings they can upgrade to Pink in good standing.

Grey Sheet Market is at the very bottom and includes non-reporting companies. Grey companies are a big Red flag as these organizations are under investigation.

They also show a Caveat Emptor (CE) symbol next to their name on their Otcmarkets.com profile. Avoid these types of penny stocks.

Caveat Emptor means “buyer beware.” It comes from the Latin meaning of Caveat Emptor, which means “Let the buyer beware.”

“Buyer Beware” is an appropriate tag for a stock you see with a CE marking.

It cautions investors and lets you know that investing in this company, there is no assurance the company is safe or has been compliant with OTC Markets Group.

When you see the CE marking on a stock on the OTC Markets Group website, it means that the company has made no or minimal effort to show compliance with regulatory organizations such as SEC or OTCMarkets.com.

Always thoroughly research penny stocks and be extra careful before making any investment decisions.

How to Purchase OTC Stocks

How can I purchase OTC Stocks? First, you will need to signup for an account at a reliable broker-dealer that lets you trade US Securities on the OTC Markets.

Enter the stock ticker symbol inside your online brokerage platform. The stock price and chart should now show up, allowing you to trade that company.

To buy company shares, you must provide details such as the quantity and the price you are willing to pay.

Ensure you select Limit Order instead of Market Order when buying OTC stocks.

Limit orders will avoid your shares bought at an unsuitable price you do not wish to pay.

Limit Orders also tell your broker to buy the OTC stock shares at a predetermined fair market value.

I have written an article detailing what broker to use and How To Buy OTC Stocks from outside the US.

How To Sell OTC Stocks

Is it hard to sell OTC stocks? No, it is not hard to sell OTC stocks. The process should be straightforward and very similar to buying OTC stocks.

The only difference is this time; you are executing a sell order to close your previously purchased shares.

Once you have decided the number of shares you want to sell, you should utilize a limit order.

Using a limit order will help set a predetermined price on where you are comfortable selling your shares.

What Are The Challenges An Investor May Encounter Selling Over-The-Counter (OTC) Stocks?

The challenges of selling OTC stocks include difficulty finding buyers, lack of liquidity (volume), and wide bid-ask spreads.

Remember to be patient and keep your shares until a reasonable offer arrives.

There are two different ways that people trade. One way is through an exchange, and the other way is Over-The-Counter.

Exchanges such as NYSE, AMEX, NASDAQ match buyers, sellers, and the trades directly transact on an exchange.

However, OTC Markets are different than exchanges as Broker-Dealer trade amongst themselves and other individual investors.

Broker-Dealer’s trade with one another, and this can cause orders you place to buy or sell to take much longer than traditional stock market exchanges.

Your buy and sell orders can be filled directly by the Broker-Dealer you are using or routed to another Broker-Dealer that can complete your order.

You can also use a subscription service such as Scanz Level 2 Data to have an in-depth view of the Bid-Ask spreads between buyers and sellers.

Having a software program showing Level 2 market data will provide you with a detailed picture of the Bid and Ask spread.

Level 2 lets you know precisely where orders can be bought and sold at the current price set by the market makers, which will help you buy or sell different stocks.

The Differences Between Over-The-Counter (OTC), NASDAQ and NYSE Stocks

For a small investment, penny stocks (OTC) offer the opportunity for big rewards.

Investors can buy these low-priced shares that are often priced under $1 per share and get in on startups before they hit it big with an IPO or exit strategy through acquisition by another company.

However, there is also more room to lose money than any other type of stock because most companies have a market capitalization of less than $50 million.

If you don’t do your research correctly, you risk having your small investment could easily be lost.

There is an appeal to this type of investment too. If it turns out well, then you’re set!

If not, though, your losses will still only amount to pennies, making many investors hesitant.

Over-The-Counter penny stocks are high risk but have a higher reward with potential gains or losses.

Examples Of Penny Stock Trading Over-The-Counter (OTC)

The stock chart below for a penny stock company symbol CERPQ is an excellent example of how volatility can affect the price.

These stocks are susceptible to market sentiment and daily news stories that could change investors’ minds.

The below chart displays this by showing sudden spikes in share price, followed by sharp drops in value and periods of stability.

At the beginning of the chart in April 2020, you can see that the price is low, and to buy shares in this company, you could have purchased them for under 1 penny at $0.009.

As time passes, you will notice that the share price reaches a high of $0.70 on March 15, 2021, right after experiencing two large price spikes.

The price spikes were possibly by investors’ reactions to certain events like good quarterly earnings reports or positive news stories about this company.

However, just because stocks go higher doesn’t mean they’re safe forever, and price increases only last until they fall and buying volume decreases and selling volume takes over.

Penny stocks are an increasingly popular investment option due to their low price and high potential for quick returns.

With a company’s share costing less than one penny, many investors see these investments as an excellent way to quickly make money on news events that impact stock prices or other outside factors such as a takeover or merger.

The problem with investing in penny stocks is that they can be very volatile and unpredictable, so it’s best not to spend all your savings in one transaction.

As seen from the chart above, there have been plenty of moments where shares dropped dramatically only after rising significantly.

It is important not to jump in too quickly without fully understanding what you’re getting yourself in.

cerpq otc penny stock 1

How Much Money Can You Make Investing In Penny Stocks?

Using the stock chart example above, Investing $100 in this penny stock at $0.009 on April 2020 would have bought you 11,111 shares of CERPQ company.

If you were patient and held on to those shares for another year and sold them later at the peak high of $0.70, you would have been able to profit a total value of $7,777.77.

This investment would have resulted in a considerable profit which is not an insignificant sum for such a low investment.

Results are not typical and should not be an indication of guaranteed success.

Detailed Tradingview Tutorial For Beginners Setup Guide

There are many different types of charting software. However, if you would like to use Tradingview similar to the example above, you can check out this tutorial for further setup details.

Since you are interested in trading, learning how to use charts and install indicators for technical analysis is required.

These charting tools will help you make more informed decisions regarding your investments and give you greater insight into the market as a whole.

This tutorial goes in-depth into everything you need to know about using trading charts and tools for technical analysis you may find helpful.

The Pros and Cons of Investing in Penny Stocks (OTC)

The Pros

  • Invest in risky stocks that, with proper research and guidance, can earn you huge returns
  • Penny stocks tend to gain large percentages after good news is made public
  • Don’t need much money upfront to buy a large number of shares
  • Higher potential return than mutual funds or bonds
  • Increase your chance of profit by getting into stocks before the company gets big
  • Great way to invest in companies that you believe will grow with time
  • You can make more than if you invested in larger more expensive companies
  • Penny stocks often provide very high returns on investments
  • One company could gain 100-1000% overnight
  • Investing in penny stocks allows you to buy more than one stock with less money
  • Buying shares is not always expensive
  • Easily accessible for the average person
  • Invest your money in an innovative company with new technology

The Cons

  • The price of penny stock shares is much more volatile than other investments
  • These companies may not report financial statements or audit reports on time. Meaning you should use more caution as these companies may not always follow all government regulations or SEC filing deadlines
  • Penny stocks are high-risk investments
  • One of the riskiest investment options out there
  • High volatility means you could lose everything overnight
  • Penny stock trading may not have the same protections as traditional investments
  • More fluctuations in pricing
  • Possibility of a complete loss of investment
  • Risk management is key when trading penny stocks because anything can happen

Investing in (OTC) Stocks: 10 Steps on How to Purchase and What to Consider Before Buying

  1. Find a stock you would like to purchase
  2. Research the company and make sure it is a good fit for your needs. Understand the company or organization that you’re investing in, as well as its financial standing and performance
  3. Understand how much risk you’re willing to take with your investments
  4. Decide the amount of money you want to invest in that stock
  5. Determine how many shares of that stock you will need to buy
  6. Find a reputable broker to deal with. Go online or contact your local broker and purchase the stocks via an electronic trading platform. Check out reviews of different brokers online to see which one will work best for you.
  7. Track your investments by signing up for a free account with Google Finance, Yahoo Finance, or MSN Money if you desire
  8. Keep track of any news articles about your chosen company so you can make informed decisions about future purchases
  9. Consider selling when the price reaches at least 50% profit margin over what it was originally purchased for (or if other factors are influencing the decision)
  10. Diversify your portfolio by investing in more than one stock and split your risk across multiple investments

The Best Brokers for Stock Trading: Compare Options

Compare the best brokers for stock trading and determine which one is the best for you. There are many different options for choosing a broker, but we can help you make an informed decision with our Best Brokers list. Check out some of these popular brokers below.

BrokerCost Per TradeAccount FeesMin DepositBroker Assisted Trades
Charles Schwab$6.95$0$0$25
Fidelity$0$0$0$32.95
TD Ameritrade$6.95$0$0$44.99
Trade Station$0$0$0$50
Interactive Brokers$0$0$0$30
E-Trade$6.95

(or $4.95 for customers executing 30+ Trades Per Quarter)
$0$0$25
Wells Fargo$0$0$0$25
Webull$0$0$0-
Robinhood$0$0$0-
*Price subject to change. Verify directly with your broker-dealer for updated rates

Do Investors Have The Ability To Short Sell Penny Stocks?

Yes, investors can short sell penny stocks. In other words, investors can make a profit by investing in shares that they believe will lose value.

Hedge funds and large institutions may use this strategy to profit. Note that shorting penny stocks would not be an excellent strategy for starting as a beginner. It doesn’t always work out and can be very risky.

For example, a person would lose money if they shorted a stock at $0.50 and the share price increased to $100.

The exception is if this person covered their short position by buying back those shares in time before he ran out of cash.

Penny stocks are often very volatile, and short-selling them could be risky. You should first completely understand how shorting works.

Shorting shares of a companies stock should be avoided, especially for inexperienced traders.

Using the buy low sell high strategy, the most you can lose is your original amount invested if things go wrong.

The most important thing is patience when trading. It takes time to learn, so don’t give up too soon and take your time to learn to invest the right way.

What Is Stock Short Interest Data

You may be asking yourself how to short sell OTC stocks?

First, it would be best to check the total number of shares traded in the float where investors are selling shares short.

The short interest data is the number of investors betting that a company’s stock price will fall.

You can find out about stock’s short interest data for a specific company below.

Go to one of these websites and type in the stock ticker symbol name of the company you wish to view the total short interest. This information is typically updated once daily.

OTC Short Interest Volume

How To Find More Information About Penny Stock Companies

OTC Markets Group is the company that operates the financial market for OTCQX, OTCQB, and OTC Pink. They have a website called OTCMarkets.com.

You can find information about the most popular stocks and how they are doing on that website.

The website lists what companies are being traded, including information about the company’s performance.

OTC Markets Group shows the most active companies and advances and decliners.

You can search for company filings, share structure, float size and use their Stock Screener for free.

Alternatively, there are some paid options for penny stock screeners such as Scanz or Trade-Ideas software if you are interested.

What Time Does The OTC Market Open?

The Over-The-Counter market opens at 9:30 AM Eastern Standard Time. Markets are open during weekdays, including Monday, Tuesday, Wednesday, Thursday, and Friday.

The Over-The-Counter market closes at 4:00 PM Eastern Standard Time. Weekends including Saturday and Sunday, are permanently closed.

It would help if you kept in mind markets close for special holidays.

Examples include New Years Day, Christmas Day, Good Friday, and more. The Over-The-Counter Markets website shows Market Hours and Holiday Schedule on their website.

Alternative Broker Reviews: How To Buy Over-The-Counter (OTC) Stocks

If you are still unsure of which broker-dealer to go with and are interested in reading additional reviews on alternative stockbrokers, be sure to check out some of our other interesting articles you may find helpful.

Final Thoughts On The Importance Of Understanding Penny Stock Investments

You may be wondering why I’m writing about penny stocks. The truth is that investing in penny stocks can be a lucrative strategy.

It would be best if you learned what to look for, how they work, and when it’s the right time to buy them. Penny stocks are risky investments, but there is a potential payoff.

If this is your first time investing in these markets, you should educate yourself as much as you can first.

Educating yourself first will give you a better understanding of how these investments work.

You will then know what to expect before making an investment decision. Finally, the best way to learn how to invest is by doing it.

We hope that your first steps can be less scary than they might have been otherwise with our guide.

Keep in mind one crucial tip would be to start with a small account balance on your first deposit.

You should use only money you are comfortable losing while still learning.

You can consider using a more significant account balance when you become profitable. Do not rush your learning process.

Allow yourself the time you need to feel comfortable when first starting. Keep in mind that there will be winners and losers.

Stay tuned for more great content coming your way. Also, feel free to reach out to us with any questions or comments, and we will get back to you as soon as possible.

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