What is the Over-The-Counter Market?

Over-the-counter (OTC) refers to trading securities outside official stock exchanges; Nasdaq, for example. A wide range of securities can be traded over-the-counter, including common stocks, American Depository Receipts (ADRs), and even derivatives. ADRs refers to securities issued by a bank representing shares in a non-U.S. company.

Many companies choose to trade their shares over-the-counter because they cannot meet the listing requirements of official security exchanges. Another possible reason is that they are not willing to (or cannot) afford the listing fees of exchanges.

The OTC market provides investors opportunities to trade securities outside official exchanges. Investors can add stocks already listed in another country to their portfolio. With varying asset requirements and relatively low listing fees, the OTC market offers a place for large groups of unlisted companies to trade.

Tiers of OTC Markets

Securities trading in the OTC markets are mainly divided into three markets—the OTCQX, OTCQB, and OTC Pink, all provided by the OTC Market Group. The OTCQX market ranks the first in high listing requirements, OTCQB the second. OTC Pink has no formal listing requirements. See below for a brief comparison.

Types of companies

Listing requirements

OTCQX International

Companies already listed on an international exchange
(Not penny stocks, shell company, or in bankruptcy).

Asset requirements; Current regulatory disclosures.

OTCQX U.S.

Qualified smaller and growth companies (Not penny
stocks, shell company, or in bankruptcy).

Asset requirements; Current regulatory disclosures; Bid test.

OTCQB

Entrepreneurial and development stage U.S. and
international companies (Not in bankruptcy).

Current regulatory disclosures; Bid test.

OTC Pink

Companies of all development stages, including penny
stocks, shell companies, and companies in bankruptcy.

Low disclosure requirements.

What are the risks involved in trading OTC securities?

Although OTC trading allows investors access to unlisted securities and ADRs, there are also many risks involved with trading OTC securities. Aside from the same market risks that exist with listed securities, OTC's carry additional risks you should be aware of.

Business risk

Different tiers of OTC markets pose different listing requirements regarding minimum assets, quote price, reporting status, and financial information disclosure. This means the quality of OTC securities could vary greatly. Companies with little or no financial information are likely in bad management and poor financial status. Investors should check company information and financial reports before investing in OTC securities.

Liquidity risk

OTC securities do not have a centralized trading venue like listed stocks. This would make some micro-capital companies with low trading volume even more illiquid. In an illiquid trading environment, orders take time to fill or fill at unfavorable prices. Investors can use limit orders instead of market orders to avoid situations where transaction price deviates too much from the desired price.

How do I invest in OTCs?

You can buy and sell OTC securities with a Webull brokerage account.

Webull currently supports trading in about 200 OTC securities.

+This list is subject to change at any time and without prior notice.

Please click here to view the available symbols list.

Disclosures: Trading Over the Counter Securities (OTC) involves a great deal of risk and may not be suitable for all investors. Unlike exchange traded securities, OTC securities lack liquidity, which may make it difficult to trade. There is a possibility of complete loss of your investment. Please be aware that not all companies trading OTC are registered with the Securities and Exchange Commission. It is extremely important to do extensive research on any company you plan to invest in. Securities trading is offered to self-directed customers by Webull Financial LLC; therefore, you accept full responsibility for all OTC transactions for your account. Please ensure that you fully understand the risks involved before trading OTC Securities by reading the Webull Financial OTC Security Disclosure Terms & Conditions.