If you are fairly new to the great world of stock markets such as those traded on Wall Street, and hope to build your own financial empire much like Warren Buffet did, then may I suggest that you try your fishing skills in penny stocks that are traded on the OTC. Now, you might wonder what is this OTC all about.
OTC Penny Stocks and OTCBB
Well OTC stands for Over The Counter, and OTCBB (Over the Counter Bulletin Board) is a sort of stock exchange much like the national stock exchanges that you might be familiar with such as the NYSE and NASDAQ. But I must caution you that OTC stocks are not same in character as those listed on the big national stock exchanges. This is because OTC deals with only micro stocks (the stocks that are mostly priced under $1.00) that are popularly referred to as the penny stocks and sometimes as nano stocks too. As per the strict Securities and Exchange Commission or SEC guidelines no penny stocks can be traded above $5. Any stocks that sell more than $5 will have to be notified to the SEC by filing financial and other details about the company to who the stock belongs.
In fact those shares that failed to maintain the strict stipulations mandatory for companies listed on the national stock exchanges such as when shares of listed companies trade below $5 because of poor performance or fail to file financial details, such companies are immediately delisted and bundled out from the National stock exchanges. These companies then have very little scope other than to list themselves with the OTCBB.
That is why OTC penny stocks are a risk since one does not know the financial and business details of the company including its past history. This is because one really does not know if the shares belong to a failed company that was once listed on the national stock exchanges or that of a potential start up company. To get the details you will have to carry on with your own research although micro-stocks in OTC have to send details of their trading transactions (such as price quotes, details of sale prices and volume information ) to the NASDAQ as per SEC guidelines.
Moreover OTC penny stocks listed on the OTCBB does not require any minimum share price or market capitalization. In fact unlike stocks in large national stock exchanges the OTC micro stocks do not require to file any details of corporate governance or other requirements at all. There are those scam masters who take advantage of this small SEC guideline by hyping their penny stocks as those belonging to a company listed in the NASDAQ which is in reality false and misleading.
No Risk No Gain
Hence OTC penny stocks are a great risk to trade since these are mostly speculative and capped below $500 millions. For this you will have to consult authentic sources such as newsletters from reliable sources and also automated software that can help you to sort out the potentially hot penny stocks from those that lack momentum. You can guess the demand for a particular penny stock in comparison to others from the market by looking at the transaction volume as well as the trading patterns that overlap those of similarly successful stocks in the past. Based on ones experience in dealing with such stocks one can decide on the entry and exit points to trade safely for better returns.
However once you learn to fish in troubled waters nothing could be as delightful to feast on a lovely catch from such turbulent waters. Similarly too is the case with OTC micro stocks. Nothing could be as lucrative and one can build ones fortune with very little funds by investing and trading on the OTC market for penny stocks. You won’t be surprised when you find that quite a few amongst these penny stock companies will one day grow into a giant sequoia tree, metaphorically speaking. In fact if you scan through the list of Fortune 500 companies, many of them started business as penny stock companies that have grown to become a giants like Wal Mart and Dell. One never knows which of these companies will reach the zenith, but since you won’t be investing from a long term perspective, I think you limit yourself in trading as per the market trends and not wait till it turns into some kind of a giant. It would be too risky from investment point of view.