How to Buy OTC Stocks

Have you ever heard of an OTC stock? Do you know how to buy OTC stocks? If not, read below and open another world of investment opportunities.

What Are OTC Stocks?

OTC stands for Over the Counter. OTC stocks are not listed on an official stock exchange. There’s a large network of dealers and brokers. To trade an OTC stock, you must go through a broker to invest.

There are three types of OTC stock:

1. OTCQX
2. OTCQB
3. Pink Markets

OTCQX is the top-tier when it comes to learning how to buy OTC stocks. It’s the most difficult for companies to enter and it has the tightest restrictions. According to OTC Markets, OTCQX companies “meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, (are) current in their disclosure, and have a professional third-party sponsor introduction.”

These companies need to have a board of directors and an audit committee. Plus, they need to hold annual shareholder meetings. Penny stocks, shell companies and bankrupt companies are not allowed in this top tier.

OTCQB is the middle-tier of the OTC market. It’s known as the Venture Market. Companies in this tier are usually new and don’t have a long track record of financial history. To be in this tier of the OTC Markets, a company cannot be bankrupt. They must be current in their financial reporting. They also need to have a bid price of at least one cent and undergo management certification each year.

The Pink Market includes everything else. It’s a transparent trading platform. It gives you access to a wide variety of companies and investments. There are some good companies in this tier. But there are also bankrupt and suffering companies in this tier. The Pink market also houses bonds and other types of investments.

Examples of OTC Stock

OTCQX Example:

Nanoxplore Inc. (OTCQX: NNXPF) is a manufacturer and supplier of graphene powder for industrial markets. It’s based out of Montréal and has facilities across Europe and North America.

The company meets the high financial requirements. It’s compliant with U.S. securities laws and is current in its disclosures. It had a third-party introduction by a professional.

OTCQB Example:

Nova Minerals Ltd. (OTCQB: NVAAF) is an Australian company that mines for minerals. Right now, it’s mining for gold. It listed publicly in 2009. This is not a new company.

Nova Minerals isn’t bankrupt. It’s current in its financial reporting and the stock price sits at around $0.50 at the time of writing this. So, it’s above the $0.01 listing price rule. When it first listed, the price was at $0.11, then went down to $0.01. It climbed consistently since then, but even with a recent dip it’s still above the $0.11 mark.

Pink Market Example:

AB Electrolux B S/ADR (PINK: ELUXY) is referred to as Electrolux and it produces common household appliances. It’s the world’s second largest appliance manufacturer, after Whirlpool.

This is a Swedish company. It’s trading over $25 and pays a dividend. The stock has seen many ups and downs since it first listed in 1987. This is an example of a company on the Pink market that might be worth investing in.

How to Buy OTC Stocks Online

Now you know a bit about what the OTC Market is and how it works. If you like what you hear and want to invest in some OTC stocks, it isn’t as difficult as it may seem.

First go to otcmarkets.com.

Then, in the main menu under the Market Activity dropdown, click stock screener at the bottom.

It will take you to a list of all the companies in the OTC Markets. You can see the price, symbol, name and other standard stock information. You can also see if the stock is “penny stock exempt.” Which means one or more of three things:

1. The stock is at least $5 per share,
2. The company has returns of at least $6 million dollars for the last three years,
3. Or the company has assets exceeding $2 million (if it’s been in continuous operation for at least three years). Or $5 million (if it’s been in operation for less than three years)

The platform also lets you see its dividend yield, SEC type, home country and market.

You can browse through the OTC stocks with the screener, or you can use filters to narrow down which stocks you see. You can choose which market(s) you want. Or you can also choose to filter security types, country and industry. It even lets you filter by growth and performance.

I use the growth and performance tools of a stock screener often. I find some great companies that way, too. When you’re using these two sections of any stock screener, you need to know what you’re looking for. Make a quick search for “what is a good rate of growth for a company” or something relevant to what filter you’re using. It can save tons of time and money.

After you find a company you want to invest in on the OTC markets, you need to find a broker. You don’t HAVE to use a full-service broker. But especially when you’re starting out, they can be worth the cost.

They can educate you and show you how things work. Plus, they’ll be there to support and guide you through. Yes, they get a bad rap, but in the beginning, you don’t know what you’re doing. So it’s a good idea to go to people who do know what they’re doing.

Some of the best full-service brokers are Fidelity Investments, TD Ameritrade and Charles Schwab.

Are OTC Stocks Safe?

OTC stocks can be profitable, but they can also be risky. And you need to watch out. Some of them are extremely volatile. The fact that they aren’t on a major stock exchange means it’s easier for scammers to grab your money.

This generally only applies to the Pink market, though. The barriers to entry in the OTCQX and OTCQB markets make it more difficult to pull off a scam.

If you do your homework, you have a smaller chance of someone taking your money. Look into the company’s history, leadership and financials. Call the phone number listed on the website to see if it’s legitimate. There are lots of things you can do as an investor, and the more boxes you check, the better your chances are for success.