Over The Counter Stocks, or OTC stocks, are stocks that have very low market capitalization. Thus, they will not be able to comply with the regulations laid down by the Securities and Exchange Commission (SEC) to be listed on stock exchanges. These OTC stocks are traded on the Over The Counter Bulletin Board (OTCBB).
Trading in the OTCBB is very different from trading in other stock exchanges. This is because the OTC stocks are not listed anywhere. All OTC stocks purchases must be made through brokers only. Instead of matching orders, they actually carry an inventory of securities and they sell these securities as and when they get a buy order.
Trading OTC stocks in the OTCBB is not a very difficult or cumbersome process. The primary step is to choose a broker. This is a very important step because it is the broker who will actually execute the transaction. This can be done by opening an account with a brokerage firm. Not all brokers trade OTC stocks, therefore care must be taken to choose the right one. After selecting the brokerage firm, one can buy any number of shares of any number of companies.
Every investor should have an investing plan. An investing plan is a strategy to make money in OTC stocks. An investor can buy thousands of shares in one company and wait for it to double, or he/she can buy a small number of stocks in many companies and make a small profit from each company when all these companies do well. The actual plan depends on the financial and investing goals of each person.
The next step is picking the right stock. There is no universal law for selecting stocks. The best way to pick the right stock is to do a thorough research on the prospective companies and their share values.
While doing research, one must look at the past performance of the company, the value of its market capitalization, projected growth of the company over the next few years, the average volume traded everyday, its dividend history, the management of the company, its productivity over the last few years and its potential to increase it’s earnings in the next few years. There are many websites available that provide this kind of information about every company.
The most important part of investing in OTC stocks is discipline and goal setting. As an investor, one must decide the percentage of profit that he or she expects to make from each of the shares. It has to be a reasonable percentage, say 5% to 15%. Unrealistic expectations like 200% or 300% will not be feasible.
Once the profit goal is reached, the investor must sell his or her stocks. This is what is called the exit strategy. Any person can buy shares but only a smart investor will know when to sell them. Greediness will only result in the loss of money for an investor in the long run.
Be a smart investor and start investing wisely in OTC stocks today!