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What is an OTC Stock?

What is an OTC Stock?

Over-the-Counter securities transactions are done outside of formal exchanges, and the term could refer to private investments and contracts or transactions in unlisted securities, such as penny stocks.

The major exchanges have requirements for being listed, pertaining mainly to the size of the company offering equity shares and the nature of the securities. Resources such as the Over the Counter Bulletin Board and "pink sheets" help to facilitate trades that cannot be performed on the largest exchanges, but there are several caveats to bear in mind.

One is the fact that these prices are not updated as frequently as exchanges, and the companies may have bad credit records. Other OTC trading occurs with Forward Contracts, Swaps, and bonds, for example, much of which is done on an institutional level.

Keywords: bonds, over-the-counter (OTC), penny stocks, pink sheets,