Our fees are changing on 4 March 2023. Learn more.

Stake logo

Share

Stake Academy Wall St: OTC Stocks

Over-The-Counter (OTC) stocks aren’t the type that you’ll find on a typical exchange, so what are they and how can you use them in your portfolio?

OTC Stocks are commonly confused with being just Pink Sheet companies. But actually there are a variety of OTC stocks, and these non-exchange-listed stocks include multi-billion dollar global companies like Adidas ($ADDYY) and Nintendo ($NTDOY)

So let’s dive in and find out more on how these OTC stocks work and how to get access.

Going Deeper

Two major questions arise surrounding OTC stocks.

Without an exchange, how do these shares change hands? Such shares are traded through broker-dealer networks. Using an electronic system, scores of broker-dealers are posting stocks on offer. Trades are executed directly between the buyer and seller without the need for a third party exchange to settle transactions.

A company called the OTC Markets Group runs these networks through three major marketplaces:

Best Market (OTCQX): Best Market has the most stringent report requirements and is the home to multi-billion dollar foreign companies. The majority of OTC stocks available on Stake fall into the OTCQX category, although only 4% of OTC stocks are in this tier. Stocks under US$5 in price are also ineligible for OTCQX trading.

Venture Market (OTCQB): The middle tier, with companies that tend to be early-stage or developing.

Pink Sheets: Such companies don’t have to report to the U.S. Securities and Exchange Commission (SEC). While pink sheets may have a bad image, some big names like Nintendo fit into the category. U.S. regulators may not monitor such stocks, but foreign regulators may.

Why OTC?

Why would a company go OTC rather than on an exchange? In short, listing on an exchange is difficult and costly. For companies of a certain size, the costs accrued to both list and comply with the yearly SEC and Financial Industry Regulatory Authority (FINRA) audits keep them out of the major exchanges.

For bigger companies, like the OTC stocks found on Stake, they are generally foreign American depositary receipts (ADRs). These companies are already listed on a local market and an OTC listing provides an easier option for foreign investors to access the stock. Another reason is to avoid the SEC’s regulatory conditions.

A Few Things To Consider

It’s important to recognise that OTC stocks tend to have lower liquidity. Entering and exiting positions may be more difficult if traders are looking for specific prices. Lower liquidity is also associated with increased volatility.

Pay careful attention when placing orders to ensure you execute at your desired price. Read our guide on the types of orders available to understand how to best leverage the market, limit and stop orders to execute trades.

How Do I Trade OTC Stocks?

OTC stocks are available to Stake Black members only. Per fair terms of use agreement, Stake Black members can make up to 10 OTC trades per month with $0 brokerage. Stake Black gives users access to not only OTC stocks but analyst ratings, full company financials and instant buying power. For just US$9 per month or US$90 billed annually, upgrade to Stake Black in your account profile page. View OTC Disclaimers here.



Stake logo
Download Stake
App Store logo
Google Play logo
Stakeshop Pty Ltd, trading as Stake, ACN 610105505, is an authorised representative (Authorised Representative No. 1241398) of Sanlam Private Wealth Pty Ltd (Australian Financial Services Licence No. 337927) ('Sanlam') and an authorised representative (Authorised Representative No. 1241398) of Airwallex Pty Ltd (Australian Financial Services Licence No. 487221) ('Airwallex'). Stake is not authorised by Airwallex under Airwallex’s AFSL to arrange for clients to be issued with securities as Airwallex is not authorised under its AFSL for this purpose. Stake is not authorised by Sanlam under Sanlam’s AFSL to arrange for clients to be issued with a non-cash payment facility as Sanlam is not authorised under its AFSL for this purpose. Stake SMSF Pty Ltd (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. Stakeshop Pty Ltd will also run marketing and promotions to you under. For more information about SMSFs, see our SMSF Risks page.The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers  before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

Copyright © 2023 Stake. All rights reserved.