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Over the Counter Stocks: Rebels of the Stock Market


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Understanding Over the Counter Stocks

Over The Counter StocksOver the counter stocks go by many names. They are often called penny stocks or pink sheet stocks. Sometimes they are simply referred to as OTC’s. Whatever you call them, however, it is important to understand what they are before you jump into an investment. OTC stocks are the least expensive stocks on the market. They are the black sheep of the investment world, not conforming to the expectations of the regular market. In fact, they are not listed on the regular market at all, but are instead listed in the pink sheets. The pink sheets specialize in stock that cost less than $5 a share and they ask companies to provide them with very little information. Over the counter stocks are usually held by new companies or they represent experimental products. They are not under the regulation of the SEC and it can be difficult to research their financial history. In many cases, the companies are so new that they have no real financial history.

Investing in Over the Counter Stocks

Many investors balk at over the counter stocks because they are so difficult to research and so difficult to pin down. A smart investor, however, can use these qualities to their advantage. The main benefit of an OTC stock is its low cost. By spending so little on the initial investment, investors minimize their potential losses. Additionally, because the stock is starting out at the bottom of the heap, it has a lot of room to appreciate value. Investors who avoid OTC stocks because they are volatile are missing the fact that they are just as likely to shoot up in value, as they are to fall. Because the shares cost so little in the first place, a well diversified portfolio of over the counter stocks can result in incredibly lucrative returns.

 

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