Over-the-Counter OTC Markets: Trading and Securities

On an exchange, market makers – that is, big trading firms – help keep the liquidity high so that investors and traders can move in and out of stocks. Exchanges also have certain standards (financial, for example) that a company must meet to keep its stock listed on the exchange. Last month OTC Markets launched MOON ATS, an overnight trading platform that lets investors trade NMS securities listed on major exchanges Proof of personhood from 8 PM to 4 AM Eastern Time, Sunday to Thursday. As a result, it is vital to emphasize that in order to reduce risks, the investor should find a reputable broker-dealer for negotiating the trades. OTC Markets Group (OTCM 0.21%) is the name of the company that operates a public market for securities that, for one reason or another, don’t trade on major stock exchanges such as the NYSE and the Nasdaq Stock Exchange.

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These are often companies with financial reporting problems, economic distress, or in bankruptcy. The company was first established in 1913 as the National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, otc markets publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively.

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The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory https://www.xcritical.com/ or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. The OTC, or over the counter, markets are a series of broker-dealer networks that facilitate the exchange of various types of financial securities. They differ in several key aspects from the stock exchanges that most investors and the broader public know of. Most brokerages allow retail investors to trade on OTC markets, although they may have additional requirements due to the risk of OTC trades.

What are the main factors to consider when researching OTC stocks?

• Robinhood quickly expanded its own offering into prediction markets in October following a court ruling that allowed trading in the budding domain to proceed.
• In addition, companies traded OTC have fewer regulatory and reporting requirements, which can make it easier and less expensive when raising capital.
• This allows investors to diversify their portfolios and gain exposure to international markets and companies that may not be available through traditional exchanges.
• OTC markets provide access to securities not listed on major exchanges, including shares of foreign companies.
• This can be done by searching for the OTC stock on the platform and placing an order.

The over-the-counter market—commonly known as the OTC market—is where securities that aren’t listed on the major exchanges are traded. Consider placing a limit order, due to the possibility of lower liquidity and wider spreads. Lower liquidity means the market may have fewer shares available to buy or sell, making the asset more difficult to trade. When there is a wider spread, there is a greater price difference between the highest offered purchase price (bid) and the lowest offered sale price (ask).

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That said, the OTC market is also home to many American Depository Receipts (ADRs), which let investors buy shares of foreign companies. The fact that ADRs are traded over the counter doesn’t make the companies riskier for investment purposes. Less transparency and regulation means that the OTC market can be riskier for investors, and sometimes subject to fraud. What’s more, the quoted prices may not be as readily available—with less liquidity, these stocks are prone to big swings in prices. The OTC Markets Group has eligibility requirements that securities must meet if they want to be listed on its system, similar to security exchanges.

Identifying which of the three OTC markets a stock is in can help guide your determination of a company’s relative investment risk—even though that information alone won’t help you decide if it’s a good investment opportunity. That’s why it’s still important to research the stocks and companies as much as possible, thoroughly vetting the available information. Or maybe the company can’t afford or doesn’t want to pay the listing fees of major exchanges.

The Over-The-Counter (OTC) market, a decentralized trading hub, provides diverse opportunities for a wide range of financial instruments. Its unique structure, distinct from standard exchanges, caters to participants who benefit from direct, flexible transactions. A plethora of financial instruments are traded over-the-counter, including stocks, bonds, derivatives, and commodities. The New York Stock Exchange in late October announced it aims to implement 22/5 trading on its Arca exchange, a key listings destination for exchange-traded products, pending regulatory approval.

Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. Investors are familiar with trading on an exchange such as the NYSE or Nasdaq, with regular financial reports and relatively liquid shares that can be bought and sold.

In the U.S., the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) oversee its operations. At an international level, the market is regulated by local financial authorities and international organizations like the International Organization of Securities Commissions (IOSCO). Without a central authority guaranteeing trades, participants are exposed to the potential default of their trading counterparties, which can result in financial losses. That opportunity has never looked so promising as it does now, with retail-trading volumes surging to levels not seen since 2021’s meme-stock craze on economic optimism stoked by Donald Trump’s election victory. Researchers at Piper Sandler expect heightened trading activity to persist into 2025 behind the strength of Fed rate cuts and a Trump administration deregulatory push.

The lack of stringent regulatory oversight compared to major exchanges can make the OTC market more susceptible to fraudulent practices and non-compliant behavior, exposing investors to potential financial and legal consequences. OTC stocks often belong to smaller companies that cannot meet exchange listing requirements. Bonds and other debt instruments, often issued by governments or corporations, are also traded over-the-counter. The OTC market provides a platform for companies unable to meet the stringent requirements for listing on a standard exchange, thereby promoting greater inclusivity in financial trading. Over the medium term, increased participation in all-hours trading by retail investors, market makers, and algorithmic traders could in turn generate sufficient liquidity to bring institutional holdouts to the table. OTC Markets Group’s breadth of coverage has long distinguished it with investors among trading venues the world over.

These markets often lack the regulations, transparency, and liquidity of exchanges. OTC markets have a long history, dating back to the early days of stock trading in the 17th century. Before the establishment of formal exchanges, most securities were traded over the counter. As exchanges became more prevalent in the late 19th and early 20th centuries, OTC trading remained a significant part of the financial ecosystem. They have always had a reputation for where you find the dodgiest deals and enterprises, but might also find future profit-makers among them.

For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. Changes in economic conditions, geopolitical events, or investor sentiment can lead to increased volatility and price fluctuations in OTC instruments, potentially impacting the value of investments. The OTC derivatives market is vast, with instruments like swaps and options offering participants the chance to hedge risks or speculate on future price movements. In certain cases, parties may also enlist the help of OTC brokers who facilitate transactions and offer liquidity, making the OTC market an intriguing blend of self-regulation and broker-based trading. Moreover, on OTC Markets, it is possible to find investment products that are not presented on securities exchanges (e.g., bonds, derivatives, cryptocurrencies, etc.). What’s more, with less publicly available information about the financials of the related company, investors must be comfortable with the inherently speculative nature of investing in this market.

Alternatively, some companies may opt to remain “unlisted” on the OTC market by choice, perhaps because they don’t want to pay the listing fees or be subject to an exchange’s reporting requirements. OTC markets are most suitable for investors who are comfortable with risk, and/or interested in diversifying their portfolios through access to foreign markets, said Pickron, who’s also the CEO of Asset Achievers, based in Dallas. As we’ve seen, some types of stocks trade on the OTC markets for very good reasons, and they could make excellent investment opportunities.