Unlock Investment Opportunities With Over-the-Counter Stocks
Over-the-counter (OTC) stocks offer you the opportunity to invest in shares of companies that are not listed on the Indian stock exchange. This article delves into what OTC stocks are and how you can participate in the OTC stock market to invest in these shares.
Is it possible to buy shares of companies that are not listed? Yes, of course! These are what you would call Over the Counter or OTC stocks. Investors can buy stocks from companies that are not presently listed on the online stock market. In this article, we will explore what OTC stocks are and how you can enter the OTC stock market to purchase these shares.
What are OTC stocks?
OTC stocks or penny stocks represent the shares of companies that are not listed on recognised Indian stock exchanges like BSE or NSE. Generally, the companies offering OTC stocks are relatively smaller in scale, typically having market capitalizations of $50 million or less.
These companies are not listed on stock exchanges for various reasons, often due to non-compliance with regulatory requirements or a lack of eligibility. However, if you recognise potential in one of these companies, you might find them attractive for investment, as they could be in the process of developing products, services, or technologies with the potential for significant growth and returns in the future. If you are just embarking on your stock trading journey, these stocks are well-suited for you as they often have lower share prices.
Want to buy OTC stocks in India?
As mentioned earlier, OTC stocks are not listed on India’s recognised stock markets. And because of this, they have a dedicated exchange of their own, known as the OTC Exchange of India; specifically tailored for over-the-counter stocks. Therefore, if you wish to engage in the trading of over-the-counter stocks, you must conduct your transactions on the OTC exchange.
Similar to trading on regular stock exchanges, direct trading on the OTC exchange is not feasible. The first step you need to take to buy or sell OTC stocks OTC securities is to open an account with a brokerage firm. You must utilise the services of registered brokers who specialize in these types of stocks. You can also purchase OTC stocks directly from the company through a mechanism known as a Direct Stock Purchase Plan (DSPP), wherein the company engages a third party to oversee the sale of these stocks.
Here are the two types of brokers to choose from:
- Online discount brokers: Discount brokers offer more limited services but allow you to trade stocks and other financial instruments at lower costs compared to full-service brokers. It’s important to note that not all discount brokers provide access to OTC stocks. However, some of them are authorized to enable their clients to trade in such stocks. If you have a demat account with a discount broker, it’s advisable to check whether the broker allows OTC stock trading.
- Full-service brokers: Full-service brokers are stockbrokers who assist in the investment of various financial instruments. Additionally, they provide investment guidance, recommendations, and portfolio management services. However, keep in mind that full-service brokers impose charges for their services and may also apply brokerage fees to each transaction. Due to their diverse product offerings, the majority of full-service brokers can provide OTC stocks to their clientele. To engage in OTC stock trading with such brokers, it is necessary to establish both a demat account and a trading account.
Key considerations for trading in OTC stocks
Before you venture into OTC stock trading, it’s essential to take the following factors into account:
- Affordability: OTC stocks often have low share prices, making them affordable for investors with limited capital.
- Transparency Concerns: OTC companies are not required to disclose as much financial information as publicly traded companies. This can make it difficult for investors to assess the company’s financial health and prospects.
- Growth potential: Unlisted companies work on innovative products or potentially lucrative ventures that could lead to significant growth in the future. However, investors should be aware that many OTC companies fail, and their stocks can become worthless.
- Heightened risk: OTC stocks are generally considered to be riskier than exchange-traded stocks. This is because they are less liquid and more susceptible to price manipulation.
- Liquidity: OTC stocks are traded in smaller volumes than exchange-traded stocks. The stocks often suffer from restricted liquidity, making it more challenging to locate willing buyers or sellers when you intend to trade these stocks.
Overall, OTC stocks can be a good investment for investors who are willing to take on more risk in exchange for the potential for higher returns. However, investors should carefully research any OTC stock before investing and should be prepared to lose all of their investment.
In a nutshell
OTC stocks can be bought through authorised brokers associated with the OTC Exchange of India. These stocks are often modestly priced and have the potential to make a lot of money if the company does well. However, they are also very risky.
If you want to invest in OTC stocks, get in touch with your broker to ensure they offer OTC trading. Then, conduct careful research of the company you intend to invest in before committing your funds.