Funds in https://www.xcritical.com/ your High-Yield Cash Account are automatically deposited into partner banks (“Partner Banks”), where that cash earns interest and is eligible for FDIC insurance. Your Annual Percentage Yield is variable and may change at the discretion of the Partner Banks or Public Investing. Apex Clearing and Public Investing receive administrative fees for operating this program, which reduce the amount of interest paid on swept cash.

Are Election Years Good for the Stock Market? What Data Shows

Investing can be risky in general, but the risks may be heightened with trading OTC stocks. But trading higher risk stocks could result in bigger rewards if they’re able to produce above-average returns. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate. You’ll also find stocks on the OTC markets that cannot list on the NYSE or the Nasdaq for what does otc mean in stocks legal or regulatory reasons.

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Tens of thousands of small and micro-capitalization companies are traded over-the-counter around the world. The markets where people buy and sell stock come in several different flavors. Those are some of the key reasons that a company might file to list its stock over the counter. ✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Although it’s easy to buy OTC stocks, the tougher question to answer is whether you should buy OTC stocks.

• Smaller or newer companies often cant afford the fees charged by major exchanges, so they trade OTC instead.
• The decentralized nature of the OTC market and the limited number of participants compared to major exchanges can result in lower liquidity, making it more challenging to execute trades at desired prices.
• Bankrate.com is an independent, advertising-supported publisher and comparison service.
• Gordon Scott has been an active investor and technical analyst or 20+ years.

How Do You Trade on OTC Markets?

Most brokerages allow retail investors to trade on OTC markets, although they may have additional requirements due to the risk of OTC trades. Interactive Brokers, TradeStation, and Zacks Trade are all examples of brokers that offer OTC markets. Over-the-counter (OTC) stocks are not traded on a public exchange like the New York Stock Exchange (NYSE) or Nasdaq. Instead, these stocks are traded through a broker-dealer network.

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Because OTC stocks have less liquidity than those that are listed on exchanges, along with a lower trading volume and bigger spreads between the bid price and ask price, they are subject to more volatility. 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). Placing a limit order gives the trader more control over the execution price. The OTC Markets Group has eligibility requirements that securities must meet if they want to be listed on its system, similar to security exchanges.

An investor trying to cover an unprofitable short position could get stuck. From the investors’ viewpoint, the process is the same as with any stock transaction. As usual, they can place limit or stop orders in order to implement price limits. OTC Markets Group, the largest electronic marketplace for OTC securities, groups securities by tier based on the quality and quantity of information the companies report.

Supporting documentation for any claims, if applicable, will be furnished upon request. Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy. The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article.

As always, consult a financial advisor if you have questions about your particular situation. Certain types of securities are frequently traded OTC, rather than through a formal exchange. Over-the-counter (OTC) trading occurs directly between two parties and can be centered around a broker-dealer that facilitates a transaction. OTC markets are almost always electronic, meaning that buyers and sellers dont interact in person on a trading floor.

Instead, most are exchanged OTC on the secondary market via broker-dealers. OTC markets are sometimes cast as the seedy underbelly of the stock market. If the major exchanges are a mall, the OTC markets are a foreign bazaar.

Look for upcoming products, services or events that could positively impact revenue and stock price. This could be expansion into new markets, product launches, mergers or acquisitions. Growth catalysts show the company’s potential and may indicate a buying opportunity. The OTC Markets Group operates regulated markets for trading over 12,000 U.S. and international securities that are not listed on indices and exchanges like the Dow Jones or Nasdaq. With less transparency and oversight, OTC companies require extensive research.

Most brokers that sell exchange-listed securities also sell OTC securities electronically on a online platform or via a telephone. Over-the-counter markets are those where stocks that aren’t listed on major exchanges such as the New York Stock Exchange or the Nasdaq can be traded. More than 12,000 stocks trade over the counter, and the companies that issue these stocks choose to trade this way for a variety of reasons. The OTC market also consists of shares of companies that do not wish to meet strict exchange requirements. Some businesses do not want to pay the cost the exchanges charge. The NYSE has a schedule of fees and charges for its exchange services.

The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account. The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions. It does not require any SEC regulation or financial reporting, and includes a high number of shell companies. There are several well-known networks for OTC trading, which are distinct in terms of the securities they offer investors.

You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). As we’ve seen, some types of stocks trade on the OTC markets for very good reasons, and they could make excellent investment opportunities. On the other hand, many OTC stocks are issued by highly speculative businesses or even outright fraudulent companies involved in pump-and-dump scams. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.

Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. Enticed by these promises, you and thousands of other investors invest in CoinDeal. The case is, of course, one of many OTC frauds targeting retail investors. Glaspie pleaded guilty in 2023 to defrauding more than 10,000 victims of over $55 million through his “CoinDeal” investment scheme.

Comparatively, trading on an exchange is carried out in a publicly transparent manner. This can give some investors added assurance and confidence in their transactions. How securities are traded plays a critical role in price determination and stability.

Shareholders and the markets must be kept informed on a regular basis in a transparent manner about company fundamentals. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. Penny stocks and other OTC securities are readily available for trading with many of the online brokerages, these trades may be subject to higher fees or some restrictions.