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 The following are a few web sites which have good information on trading Pink Sheets (OTC) and Nasdaq Over-the-Counter Bulletin Board (OTCBB) stocks:
OTC Trading Presents Great Opportunities, But Inherent Risks Too!
The OTCBB can be a fantastic opportunity to uncover companies not yet discovered by main stream Wall Street. However, there are certain strategies and windows of opportunity one should consider when looking to invest in Bulletin Board listed Securities. We hope you find the following information both useful and valuable in your efforts to create maximum returns on your investments with OTCBB Stocks.
Why Focus on OTC and OTC Bulletin Board Stocks?
As our name OTCPicks.com implies, we focus on providing our members with information on microcap stocks within the OTC markets. Our goal is to help supply our members with information on micro cap stocks that we believe have significant upside potential for investors. Microcap stocks are generally considered to be companies with market caps of less than $100 million. These stocks are not followed by Wall Street Money Managers or the main stream financial press, so you would have difficulty finding out about them yourself.
Most of the companies we feature trade on the OTC Bulletin Board. For those of you that are on not familiar with the four levels of the OTC, they are as follows:
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NASDAQ NATIONAL MARKET (NMS)
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NASDAQ SMALL CAP
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OTC BULLETIN BOARD
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OTC PINK SHEETS
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In order for a stock to trade on the NMS it must meet certain minimums qualifications. The Small Cap requirements are a little lower. The minimum requirement for the Bulletin Board is that the company be fully reporting, and in the Pink Sheets companies can be non-reporting. Pink Sheet stocks are not electronically quoted so the market can be hard to follow.
The Bulletin Board has very little institutional participation, but it is growing. Regulations that were put into effect in the Spring of 1999 forced micro cap companies to become fully reporting or be delisted down to the Pink Sheets until they obtained full reporting status. In recent years the NASD has increased the minimum requirements for companies apply for a Small Cap listing. Today's Bulletin Board is becoming the equivalent of what the NASDAQ Small Cap used to be.
We find the OTC Bulletin Board a very attractive place for individual investors. Institutions generally don't trade here, so the playing field is more level for the individual. The companies tend to have smaller public floats and lower market capitalizations, allowing for more upside potential when a company achieves success. Smaller public floats lend themselves to greater volatility to both the upside and downside.
The stocks which trade on the OTC Bulletin Board are generally not marginable. This has two advantages to the individual investor- you cannot over leverage your account, and individual investors cannot short the stocks, which helps alleviate selling pressure.
In the past the OTC Bulletin Board had a well deserved reputation as a haven for scam artists. The recent changes in the qualification regulations and the stringent review process the SEC has placed on Companies in order to maintain their listings has helped clean this problem up considerably. Today, even the smallest of OTC Bulletin Board companies is subject to the exact same reporting requirements as Microsoft or General Motors, and this is resulting in a much greater flow of institutional participation in Bulletin Board stock investing.
Investors don't mind risks, but the risk has to have upside potential. Too many companies with $3 million in trailing sales and substantial losses are trading at $1/2 billion market caps. Institutional investors are uncovering companies with the same financial performance, but with $50 million market caps on the bulletin board. Often times these companies are not as well financed as their NASDAQ counterparts, so institutions are providing capital at price levels that provide acceptable upside potential.
There are over 4,000 stocks trading on the Bulletin Board today. Proactive public companies without a Wall Street following care about creating interest in their stock. As they grow they might require another round of financing. The better their stock trades the less dilution existing shareholders will suffer. This is where companies like OTCPicks.com can help. We assist companies in getting their message out to investors and in helping to create a market for their stocks with higher trading volumes and hopefully significant appreciation in their stock value. This is of course mostly in the hands of you, the investor, and how you view that company's prospects moving forward. We are here to help provide you with information on these OTC companies so that you have more information with which you can make an informed investment decision.
Defensive OTC Trading Strategies - Using the Gap
A good strategy to use in OTC stock trading is to allocate a certain portion of your capital to a stock you want to own. Start out by only investing 1/4 of the total amount you are prepared to commit. That way you can add to the position if the stock trades lower and take advantage of other people's weakness. This only applies to investors that are prepared to hold for at least four to six months. If you view yourself as a short term trader you must follow the short term trends.
A very important rule in stock trading, particularly with thinly traded OTC stocks is never buy a stock at the market when it Gaps Open. A Gap occurs when a stock opens at a much higher price than it closed at the previous day. 90% of the time that stock will drop back down and fill the gap. Market Makers have been using gaps to line their pockets with money from investors for years.
When market makers have market orders for a stock at the open, they will often take the stock up, fill the market orders at the higher price by shorting it to investors, and then drive the price back down. Then when they have scared enough people into selling, they cover their short and walk away with a tidy trading profit.
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