The Over The Counter Bulletin Board (OTCBB) is an electronic forum where Over The Counter Stocks, or penny stocks, are traded. For each stock listed on the OTCBB, you will find information detailing the latest trade, including the price at which the stock sold per share, and the number of shares that traded hands. You will also be provided with the ask price, which is the current selling price, and the bid price, which is what buyers are offering. In OTC trading, there often will be a substantial gulf between ask and bid prices. OTC stocks are not regulated like securities trading on the bigger exchanges like the NYSE, and are very risky and volatile. There is an enormous profit potential for one willing to do his homework, but also an enormous downside because many of the companies listed on the OTCBB are start-ups or in poor financial condition. There is also a grave threat of scam and fraud in connection with OTCBB stocks.
- Skill level:
Things you need
- Open and funded trading account
- Company you wish to buy
Open and fund your trading account. There are a number of brokerage houses offering services online, so be sure to shop for the best deal. Some companies will offer a certain number of free trades in order to secure your business. Some will let you open an account with no minimum. They may charge you £2.90 per trade, for example, but give you 10 free trades if you invest £1,625.
Do your homework. There are literally thousands of companies traded on the OTCBB, and vast amounts of information in print. Thoroughly investigate all companies that you are considering investing in. Find reliable sources of information, and beware of something that sounds too good to be true.
Settle on a company or companies that you wish to invest your money in. Take your time, and be certain before you make your first trade.
Execute your trade. You can utilise the phone or go online to access your account. You will be given information regarding the last shares traded on the company you are interested in, and the bid and ask price. You are technically dealing directly with a seller of shares of stock, although the middleman broker is providing you access to the OCTBB. Looking at the ask price, decide upon the number of shares that you wish to purchase, and your account will be debited the price per share times the number of shares you desire to purchase, plus the broker's commission. You are now the owner of shares of stock traded on the OTCBB.
Tips and warnings
- Do all of the reading you can, and make certain you are well versed in not only the companies you are interested in investing in, but in the OTCBB terms of art and associated stock market lingo.
- Find reliable sources of information.
- Never invest any funds that you cannot afford to lose. There is potential for great reward when investing on the OTCBB, but also remember that you could lose everything you have invested.
- The potential for fraud and scam involving OTCBB stocks is great. Bre-X was a company that had an interest in gold mining. Gold was discovered in one of its mines, or so it was thought. Wild rumours flew rampant. Meanwhile, nothing had been verified. Investors reacted to the reports and £3 billion poured in. When it was finally revealed that no gold had been found, investors lost everything. Bre-X executives salted away millions, and the company collapsed.
- Never buy OTCBB stock based upon unsolicited information coming to you over the phone or in your inbox.
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