OTC stocks are a great way for investors to make supplemental income. Some investors even turn trading OTC stocks into their full-time careers due to the ability to make a viable income from this form of trading. If you’re interested in learning how to supplement your income with OTC stocks, you’ve come to the right place. Here we discuss what OTC stocks are, how they work, and what you can do to bring in additional income through OTC stock trading.
What are OTC Stocks?
Over-the-counter (OTC) stocks are stock options that are traded through a broker-dealer network rather than a formal exchange such as NASDAQ or the New York Stock Exchange (NYSE). Both small and large companies trade stocks on OTC markets, but the majority of organizations using this type of trading are smaller and do not meet the qualifications to list their shares on traditional stock market exchanges.
How Do OTC Stocks Work?
OTC stocks are sold through OTC markets, which are decentralized markets where financial instruments are sold directly between the buyer and seller without having to go through a broker or central exchange. All OTC stock trading is done electronically through OTC marketplaces such as the OTCQB, OTC Pink, and OTCQX markets.
OTC stocks are bought and sold by dealers who set their own prices. Trades are made between the two parties based on this set price and do not need to make others aware of the cost of the transaction. Commonly traded OTC products include bonds, currencies, derivatives, and structured products.
How to Make a Supplemental Income with OTC Stocks
Making money with OTC stocks is possible. However, due to the reduced transparency and increased liquidity seen in the OTC market, traders must be educated and savvy to make a profit with these types of stocks. The following are tips to keep in mind to increase your ability to supplement your income with OTC stock trading:
- Do your research: Some OTC markets don’t require companies to list their financial information, which limits the information you have available when trading. However, you can do research outside of the market on a company to determine its value. Be sure to look at a company’s cash, assets, and strategy for growth.
- Use stock screeners: Many traders use stock screeners or scanners to narrow down the vast number of available stocks to a smaller list. There are several free stock screeners online, including those offered by Zacks, Yahoo, and The Motley Fool.
- Set a budget: While OTC stocks often cost less than traditional stocks, they also come with a greater risk in many cases. Setting a budget and sticking with it ensures you don’t lose more money than you can afford.
- Diversify: Diversifying your OTC stock investments helps increase your overall income and reduce the liability of having all of your eggs in one basket. Consider investing in various OTC stocks rather than just one or two.
When you do it right, OTC stock trading is a great way to supplement your income. Take time to get familiar with the ins and outs of the OTC stock markets and the steps to take to make the most profit.