What exactly is an OTC stock? Very simple. over-the-counter. Just like when you go the grocery store to buy various pharmaceutical drugs. Some you can by over the counter on the shelf without a doctor prescription, and others you need a prescription.
Just like that scenario, OTC stocks are not on an official stock exchange market like the NASDAQ. They are considered unlisted stocks.
Stocks that trade on the OTC stock market, which is basically the OTC bulletin board, come with higher risk. This risk with penny stocks is generally because the company of the stock has not been approved by the main stock exchanges with very strict rules and restrictions.
A penny stock on the OTC market also suggests the company is potentially a start-up company with all the risk associated with such. These companies are typically selling shares for start up capital and, often times, release millions of shares on the market to draw more capital. The more shares they release, often times, the lower the stock price. AKA supply/demand. More shares in supply equals lower price so lower demand.
The OTC Market generally lists stocks on what is called the pink sheets. Caution is advised when investing in companies on the pink sheets as they may not be meeting what is generally considered good company financial report practices.
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