Over-the-Counter Markets: What They Are and How They Work

Interactive Brokers, TradeStation, and Zacks Trade are all examples of brokers that offer OTC markets. OTC markets have a long history, dating back to the early days of stock trading in the 17th market on close otc trading century. Before the establishment of formal exchanges, most securities were traded over the counter. As exchanges became more prevalent in the late 19th and early 20th centuries, OTC trading remained a significant part of the financial ecosystem. They have always had a reputation for where you find the dodgiest deals and enterprises, but might also find future profit-makers among them.

How Do You Trade on OTC Markets?

“Will Kamala Harris or Donald Trump win the 2024 presidential election? Get $1 for every contract you own if your candidate is certified in January—and nothing if they aren’t,” Robinhood’s website reads. “Or close your position before January 6, 2025. This is a market, not voting.” If you’re going with an online discount broker, check first to make sure it allows OTC trades. Interactive Brokers, TradeStation, and Zacks Trade are among those that do. Tens of thousands of small and micro-capitalization companies are traded over-the-counter around the world. At Finance Strategists, https://www.xcritical.com/ we partner with financial experts to ensure the accuracy of our financial content.

Q. How are OTC markets regulated?

Once the MOC order becomes active, it behaves like a normal market order. MOC orders can help investors to get into or out of the market at the closing price without having to place a market order immediately when the market closes. But OTC markets offer the ability for large and small – indeed, tiny – stocks and other securities to be listed with different requirements and, in some cases, no requirements at all. While the New York Stock Exchange (NYSE) and the Nasdaq get all the press, over the counter markets, or OTC markets, list more than 11,000 securities across the globe for investors to trade.

How OTC Markets Differ From Major Exchanges

Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. Despite its decentralized nature, the OTC market is regulated by various bodies. In the U.S., the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) oversee its operations. At an international level, the market is regulated by local financial authorities and international organizations like the International Organization of Securities Commissions (IOSCO).

Companies may opt to trade shares in the over-the-counter market (meaning, they trade through a broker-dealer) if they’re unable to meet the listing requirements of a public exchange. OTC trading may also appeal to companies that were previously traded on an exchange but have since been delisted. Banking services and bank accounts are offered by Jiko Bank, a division of Mid-Central National Bank.JSI and Jiko Bank are not affiliated with Public Holdings, Inc. (“Public”) or any of its subsidiaries. You should consult your legal, tax, or financial advisors before making any financial decisions. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns.

The Over-the-Counter (OTC) Market is a decentralized marketplace where participants trade financial instruments directly with each other instead of through a centralized exchange. This market facilitates the trading of various instruments, including stocks, bonds, derivatives, and commodities. While OTC markets offer significant opportunities for speculative investments they also come with their set of challenges. The importance of thorough due diligence cannot be overstated, given the risks of volatility, exposure to fraud, and the complexities of exiting positions. As the financial landscape continues to evolve, so too will the role of OTC trading, promising opportunities and posing challenges for short-term traders and long-term investors alike. To buy and sell securities on OTC Markets, you will need to open an account with a broker that provides access to these exchanges.

You look to be in early on what promises like a big deal, just like other storied early investors. For example, penny stocks are traded in the over-the-counter market, and are notorious for being highly risky and subject to scams and big losses. For example, some traders will want to exit at the close by either buying or selling a given financial instrument if a certain price level was breached during the trading day. MOC orders do not specify a target price, but traders sometimes use MOC orders as a limit-order qualifier—which means that a limit order will be automatically canceled if it isn’t executed during the trading day. A market-on-close order is simply a market order that is scheduled to trade at the close, at the most recent trading price. The MOC order remains dormant until near the close, at which time it becomes active.

Less transparency and regulation means that the OTC market can be riskier for investors, and sometimes subject to fraud. What’s more, the quoted prices may not be as readily available—with less liquidity, these stocks are prone to big swings in prices. The OTC, or over the counter, markets are a series of broker-dealer networks that facilitate the exchange of various types of financial securities. They differ in several key aspects from the stock exchanges that most investors and the broader public know of. If you’re considering investing in OTC securities, it’s important that you do your research and fully understand the risks you’re taking on.

Or maybe the company can’t afford or doesn’t want to pay the listing fees of major exchanges. Whatever the case, the company could sell its stock on the over-the-counter market instead, and it would be selling “unlisted stock” or OTC securities. Basically, it’s selling stock that isn’t listed on a major security exchange. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

• See our Investment Plans Terms and Conditions and Sponsored Content and Conflicts of Interest Disclosure.
• OTC markets are regulated and organized differently than major exchanges like the New York Stock Exchange (NYSE) or Nasdaq.
• Broker-dealers quote prices at which they’re willing to buy and sell securities.
• The companies that sell them usually have a market capitalization of $50 million or less.
• Over-the-counter (OTC) trading involves trading securities outside of a major exchange.

OTC markets are almost always electronic, meaning that buyers and sellers dont interact in person on a trading floor. Enticed by these promises, you and thousands of other investors invest in CoinDeal. The case is, of course, one of many OTC frauds targeting retail investors. Glaspie pleaded guilty in 2023 to defrauding more than 10,000 victims of over $55 million through his “CoinDeal” investment scheme.

Before we move on, it’s important to mention that there are some big differences between the OTC markets and the major exchanges like the NYSE and Nasdaq. Unlike the NYSE and Nasdaq, they don’t have a central physical location and use a network of broker-dealers that facilitates trades directly between investors. In contrast, the major exchanges have centralized locations and use matching technology to process trades immediately. Commission-free trading refers to $0 commissions charged on trades of US listed registered securities placed during the US Markets Regular Trading Hours in self-directed brokerage accounts offered by Public Investing. Keep in mind that other fees such as regulatory fees, Premium subscription fees, commissions on trades during extended trading hours, wire transfer fees, and paper statement fees may apply to your brokerage account. There are a number of reasons why a security might be traded OTC rather than on an exchange, including the size of the company and the country where it is based.

It is not intended as a recommendation and does not represent a solicitation or an offer to buy or sell any particular security. The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals.

High-Yield Cash Account.A High-Yield Cash Account is a secondary brokerage account with Public Investing. Funds in your High-Yield Cash Account are automatically deposited into partner banks (“Partner Banks”), where that cash earns interest and is eligible for FDIC insurance. Your Annual Percentage Yield is variable and may change at the discretion of the Partner Banks or Public Investing. Apex Clearing and Public Investing receive administrative fees for operating this program, which reduce the amount of interest paid on swept cash.