There is a bilateral contract signed by two parties regarding how a particular trade is to be settled in future, when you deal in over the counter stocks. The reason for these type of stocks to be ‘unlisted’ is usually because the company is small and is unable to meet the listing requirements of the other significant stock exchanges. Because there is no regulatory body or organization, such as the SEC to oversee the securities industry, trading in over the counter stocks involves a high risk, as well. The stocks that trade through a dealer network instead of centralized exchange, and are traded by broker-dealers who collaborate directly with one another, either on the computer or on the phone, are also known as the over the counter stocks. It is a very rare occurrence when these type of shares are able to move from "pink sheets" or over the counter (OTC) to the NASDAQ or other major exchanges like the American Stock Exchange or The New York Stock Exchange. The OTC Bulletin Board stocks are either penny stocks or they are stocks that hold bad credit records, this makes it crucial that you be extremely cautious, and that you know what you are doing, when you are trading over the counter stocks.
In United States, OTC Bulletin Board is used for trading over the counter stocks. The OTCBB is an established service (started in 1990) that is regulated, reliable, and works in real time for those interested in getting the very latest information on stock quotes, sales, and which equity security firm is handling the most business. OTC securities, which generally don’t trade on a formal exchange, are also known as Bonds. Investment banks trade mostly in these financial instruments which create markets for specific issues. Investors should call the bank that makes the market in that bond, and they should get the quote if he is interested in bond investing.
Do remember to discuss penny stocks while you also discuss over the counter stocks. penny stock investing is attractive and popular because the possibilities seem endless; you don’t have to invest as much with them as you do with other stocks and the return can be both quick and lucrative. It is very risky to buy penny stocks because the price of these over the counter stocks can plummet considerably due to the potential value of the companies that are listed in OCTBB, which are also known as "pink sheets." Such companies have very limited financial history which makes it difficult to assess their actual value. Another reason it that some of the companies are exceptionally new and are extremely close to going bankrupt. If you are really keen on trading in over the counter stocks, then make sure that at least those that you are trading are making an honest effort to move from OCTBB to major stocks like NYSE. You can certainly make some good return on investment with these type of stocks, but you must always remember that they are high risk stocks.
Trading and investing in over the counter stocks can bring huge rewards. However, even though you are only trading pennies, you should remember that there is still a huge risk of losing big money, while trading in over the counter stocks.