OTC Stock Trading – Things You Should Know

If you are planning to enter the stock market by purchasing OTC (over the counter) stock, you should understand that the process is not like buying stock from companies on the NASDAQ and the NYSE. The most prominent difference is OTC stocks are unlisted. Therefore there is not any central exchange for the market. All orders for the securities should be made with the help of market makers who actually hold an inventory of securities rather than merely matching orders, to facilitate trading. Let’s do an OTC stock analysis to understand the process.

The first step you should take before starting trading in OTC securities is to open your account with a brokers’ firm. You get two options – full-service broker and discount broker – to choose from. However you should know that not every broker facilitate OTC security trading. Your broker will work with the proper market maker to ensure a successfully completed process of the transaction.

Once you place the market order with your broker, the broker should contact the respective market maker of the security. The market maker will then quote the ask price to the broker that s/he wants to sell the security for. You can keep a constant eye on ask quotes and bid through the OTCBB (Over The Counter Bulletin Board).

As it is a market order, the price quoted should be accepted by the broker. Then the necessary amount will be transferred by the broker to the account of market maker and the broker is credited consequently with the respected securities. If you want, you can place a stop or limit for OTC securities so as to apply price limits. When you want to sell any OTC security, a similar type of process is done.

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