When most people think about stock trading, they likely think of a crowded room with shouting and furiously gesturing stockbrokers communicating in what seems like a foreign language. There are, however, other places and ways stocks are traded. Over-the-counter trading, better known as OTC, is emerging as a major opportunity for investors. OTC trading represents approximately 15% of total dollar volume in all marketplaces.
An OTC market is different than a traditional exchange because it is decentralized and does not take place in one location. OTC trades take place electronically and directly between two parties. According to Investopedia, “OTC markets are primarily used to trade bonds, currencies, derivatives, and structured products. They can also be used to trade equities, such as the OTCQX, OTCQB and OTC Pink marketplaces.”
Of the various OTC services, OTC Markets is the leader for over-the-counter trading. OTC Markets offers a platform on which nearly 10,000 US and global securities are traded. The OTC Markets platform holds a $486 million volume, nearly 4 billion in share volume, and has facilitated approximately 90,000 trades.
OTC Markets offers 3 tiered marketplaces: OTC Pink, OTCQB, and OTCQX. Of the three, OTCQX is known as The Best Marketplace. According to their website, to be traded on the OTCQX, companies “must meet high financial standards, demonstrate compliance with U.S. securities laws, be current in their disclosure, and be sponsored by a professional third-party advisor. The companies found on OTCQX are distinguished by the integrity of their operations and diligence with which they convey their qualifications.” Companies traded on the OTCQX are viewed as having vast potential for continued growth.
There are several advantages to OTC trading. For both investors and companies, OTC markets are more cost-efficient than traditional stock exchanges. Investors can buy into companies that will shape the world on a more cost-efficient platform. Walmart, a multinational corporation that has transformed retail operations in the United States, was traded on OTC markets.
Investing and the trading of stocks is beneficial to all parties involved. For companies, investors can help propel their vision forward by turning an idea into a reality. Investors can claim a stake in a world-shattering idea while supplementing their income or saving for retirement in the process. Stocks traded on OTC markets are less expensive than traditional stock exchanges, and have embraced technological innovations to make trading easier than ever before on a decentralized market. Investors trading OTC stocks can help companies to turn a great idea into a transformative reality.