If you are an investor, chances are that you have stocks in your portfolio. As an investor, you are likely to interact with the stock market through a depository participant (DP) or broker. The fact that you are trading on the stock market means you are buying and selling shares that have been listed on the stock market, also known as the secondary market. However, it is also possible for investors to purchase stocks that are not listed on the stock market. Known as OTC stocks or over-the-counter stocks, these stocks can be purchased by investors from companies that are not currently listed on the online share market. In this article, let’s take a look at what OTC stocks are, how you can access the OTC stock market, and buy over the counter stocks.

What are Over The Counter (OTC) stocks?

The stock market is classified as a secondary market. Meaning, you are not purchasing shares directly from the company, but instead are purchasing them from other investors who are selling them on the stock market. Since over-the-counter stocks are not listed on stock exchanges such as the BSE and NSE, they have their own OTC stock market.

Generally, companies that allow you to buy over-the-counter stocks are much smaller in size than those listed, with market capitalisations of 50 million dollars or less. These companies are not listed on the stock exchange for some reasons, such as not meeting the requirements to do so. Individuals trading in OTC stocks see potential in these companies, as they may be developing products or technologies that will be widely adopted and generate large returns in the future. Also known as penny stocks, over-the-counter stocks tend to trade at lower prices.

Open Demat account and Unlock smarter investing today!

The best way to buy over-the-counter stocks

Since OTC stocks are not listed on the stock exchange and have their own OTC stock market, you cannot purchase them through those means. However, some online discount brokers do offer the service that allows you to purchase OTC stocks, though not all do. It is worth doing your fair bit of research on the company and the DP you are planning to use to buy over-the-counter stocks. You can also get similar services from offline brokers. The caveat here is that since they are not listed on the stock exchange, processing time and processing fees for OTC stocks could be hired.

Individuals can also buy over-the-counter stocks directly from the company through what is known as a Direct Stock Purchase Plan (DSPP), wherein the company employs a third party to handle the sale of these stocks.

Conclusion

OTC stocks are treated with caution by investors, as the fact that they are not listed on the stock market acts as a deterrent against them OTC stock market. However, if you have the required knowledge and experience to identify over-the-counter stocks with potential, you might be able to get in early before the stock hits the stock exchange.

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account

Popular Stocks:  ICICI Bank Share Price | HDFC Bank Share Price | Britannia Share Price | Divislab Share Price | Tata Consumer Share Price