To help you make your first OTC stock investment or buy your first penny stock, I’ve put together this guide to walk you through the process (don’t worry, it’s surprisingly easy).
I’m also going to recommend a few of my favorite brokerages that will allow you to start investing in OTC stocks today!
How to Buy OTC Stocks (How to Invest in OTC Stocks) – How Do Beginners Buy Penny Stocks?
In reality, all you really need to buy OTC stocks is an investment account at a brokerage that allows OTC trades.
Most full-service brokerages have this functionality, as well as many online discount brokers, though trading fees vary.
If you’re new to technical analysis, I highly recommend investing in a day trading curriculum.
Investors Underground has the best and most complete set of trading materials which have taken complete beginners to full-time traders.
Bid and ask quotes can be monitored through the Over-the-Counter Bulletin Board (OTCBB).
If you’re new to investing in OTC stocks, here’s a quick checklist to get you started:
- Choose a reputable broker that allows OTCBB trades
- Research your potential investments and analyze as much as possible
- Avoid penny stocks that are susceptible to scams
- Diversify properly and avoid investing too heavily into speculative investments
- Have a strategy for entry and exit points
- Choose quality companies and take long-term views
(And if you’re new to investing period, here’s an article on how to invest in stocks for beginners.)
Brokerages to Trade OTC Stocks (Where to Buy OTC Stocks) – The Best Online Brokers for Trading Penny Stocks
In my opinion, these are the 5 best brokers for trading OTC stocks (penny stocks) and how much it costs per penny stock trade:
- TradeStation – $0 per trade (up to 10,000 shares)
- Fidelity – $0 per trade
- TD Ameritrade – $6.95 per OTCBB trade
- Charles Schwab – $6.95 per OTCBB trade
- Interactive Brokers – $0.0035 per share
What App Can I Use to Buy OTC Stocks?
The 5 best brokers for trading OTC stocks listed above each have their own mobile app:
- TD Ameritrade
- Charles Schwab
- Interactive Brokers
Make sure to consider brokerage promotions when you’re deciding on a place to trade.
What are Over-the-Counter (OTC) Stocks?
Over-the-counter (OTC) stocks are commonly referred to as “penny stocks” because they generally trade for less than $5 per share, frequently trading for less than $1 per share.
The companies which issue these stocks usually have market capitalizations of $50 million or less and do not meet the qualifications of larger stock exchanges, like the NYSE or NASDAQ.
Many investors are drawn to penny stocks because they can buy a large number of shares for a small amount of money. If the company turns out to be a winner, the investor may make 100x or more his original investment. If the company fails, the loss is usually a small one.
Why are OTC Stocks Risky? How are OTC Stocks Different from Regular Stocks?
Companies that trade on OTC markets are subject to less stringent disclosure requirements and regulations than companies that trade on the NASDAQ or NYSE.
As a result, penny stocks are much more difficult to research, may have murkier financial outlooks, and are more speculative investments than typical stocks.
OTC stocks are also harder to trade because of volatility and lack of liquidity, making it difficult to enter and exit your positions.
Additionally, most successful stocks (like MSFT, TSLA, and AAPL) all first listed their shares on the NYSE or NASDAQ with prices above $10.
If you’re new to trading, consider picking one of the best online stock brokers for beginners instead.
Is It a Good Idea to Buy Penny Stocks/Over-the-Counter Stocks?
Investing in penny stocks requires extra skill, knowledge, and care. These stocks tend to be highly volatile and shouldn’t be invested in without some forethought. Here are 5 tips you should remember:
- They are risky – These stocks trade for less than $5 for a reason. Don’t take unnecessary risks.
- Do your own research – Thoroughly investigate each company before buying.
- Be mindful of paid promotions – Ignore emails and advertisements touting big returns.
- Be aware of fraud – Watch for pump-and-dump schemes.
- Be aware of costs – Many brokers charge fees for trading penny stocks which can add up quickly.
What are OTC Markets?
Over-the-counter (OTC) is how penny stocks are traded via a broker-dealer network, and not on a centralized exchange (like the NYSE or NASDAQ). The stocks which trade OTC typically do not meet the standard requirements to be listed on a typical exchange.
OTC transactions can take place through the OTC Market Group’s electronic matching platforms.
Investors’ penny stock orders are placed from within their OTC-enabled brokerage accounts then routed through the OTC Market Group’s platforms, similar to how regular stock orders are routed through an exchange.
The OTC Market Group has various tiers where OTC stocks can trade: OTCQX, OTCQB, and the Pink Open Market (or “Pink Sheets”).
Each of these tiers require companies to meet various eligibility criteria. The lowest tier, the OTC Pink, has far less stringent listing criteria than the OTCQX.
|OTCQX||OTCQB||Pink Market (“Pink Sheets”)|
|This is the highest tier of OTC Markets’ securities.|
To reach this tier, companies must be current on regulatory disclosures, have audited financial statements, and cannot be a penny stock, a shell corporation, or be in bankruptcy.
|This tier was created for early-stage or growth companies.|
Stocks must have a minimum bid price of $0.01, be current on regulatory disclosures, and have audited financial statements. These companies also cannot be in bankruptcy.
|This tier is also known as the Open Market.|
There are no minimum financial standards and companies do not have to disclose financial information.
Within this tier, companies are classified as showing Current Information, Limited Information, or No Information.
OTC Stocks FAQs:
What are penny stocks?
A “penny stock” generally refers to the stocks issued by very small companies (i.e., micro-cap) that trade at less than $5 per share. Most commonly, penny stocks trade for less than $1 per share.
How to invest in OTC stocks?
Open a brokerage account with an online broker that allows OTC trading.
Personally, my favorite is Fidelity.
(Don’t know how to buy stocks online?)
Where to buy OTC stocks? Where to trade OTC stocks? How to buy over the counter stocks?
You can invest in OTC stocks online with an OTC-enabled brokerage account. The 5 best brokers for trading OTC stocks are:
- TD Ameritrade
- Charles Schwab
- Interactive Brokers
What is OTC trading?
OTC trading is investing in stocks that are sold Over-the-Counter, not on regular exchanges like the NYSE or NASDAQ.
The stocks that trade OTC are typically penny stocks, stocks with share prices less than $5.
Can you buy OTC stocks at your current brokerage?
How to buy OTC stocks on eTrade?
Does eTrade have penny stocks? Yes, you can buy penny stocks (OTC stocks) on eTrade.
eTrade charges $6.95 per OTCBB trade.
How to buy OTC stocks on Robinhood?
Does Robinhood have penny stocks? No, you cannot buy penny stocks on Robinhood. Robinhood does not support trading OTC stocks.
However, there may be penny stocks on Robinhood for a certain period of time if the stock is listed on the NASDAQ or NYSE and is yet to be delisted.
How to buy OTC stocks on Webull?
Does Webull have penny stocks? No, you cannot buy penny stocks on Webull. Webull does not support trading OTC stocks.
However, there may be penny stocks on Webull for a certain period of time if the stock is listed on the NASDAQ or NYSE and is yet to be delisted.
How to buy OTC stocks on TD Ameritrade?
Does TD Ameritrade have penny stocks? Yes, you can buy penny stocks (OTC stocks) on TD Ameritrade.
TD Ameritrade charges $6.95 per OTCBB trade.
How to buy OTC stocks on Fidelity?
Does Fidelity have penny stocks. Yes, you can buy penny stocks (OTC stocks) on Fidelity.
Fidelity charges $0 per OTCBB trade.
How to buy OTC stocks on Schwab?
Does Schwab have penny stocks? Yes, you can buy penny stocks (OTC stocks) on Schwab.
Schwab charges $6.95 per OTCBB trade.
How to buy OTC stocks on Vanguard?
Does Vanguard have penny stocks? No, you cannot buy penny stocks on Vanguard. Vanguard does not support trading OTC stocks.
However, there may be penny stocks on Vanguard for a certain period of time if the stock is listed on the NASDAQ or NYSE and is yet to be delisted.
Here’s a comprehensive overview of Vanguard vs Charles Schwab.
How to buy OTC stocks on eToro?
Does eToro have penny stocks? No, you cannot buy penny stocks on eToro. eToro does not support trading OTC stocks.
However, there may be penny stocks on eToro for a certain period of time if the stock is listed on the NASDAQ or NYSE and is yet to be delisted.
Read more: Stocks are volatile. Click here to learn what makes stocks go up and down.
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