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.
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 a number of reasons, such as not meeting the requirements to do so. Individuals trading in OTC stocks see potential in these companies, as it is possible that they are working on products or technology that will be widespread and generate large returns in the future. Also referred to as penny stocks, over the counter stocks tend to have a lower share price as well.
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 (DSSP), wherein the company employs a third party to handle the sale of these stocks.
OTC stocks are treated with caution by investors, as the fact that they are not listed on the stock market functions against a deterrent against the 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.
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