As mentioned in the previous section, trading an OTCQX, OTCQB or Pink security is comparable to trading a security on NYSE or NASDAQ. Investors may buy and sell securities through the institutional, online or retail broker-dealer of their choice. Similar to the U.

Investors desire to buy and sell securities at certain prices and broker-dealers provide liquidity by trading for their own account, matching orders internally or publishing quotes and executing with external broker-dealers. The number of orders, the volume e. A step-by-step explanation is the best way to illustrate the trading process.

The example below is tailored for individual investors, although many of the same principles apply to institutional investors. For a more detailed analysis of the trading process, please contact our Trading Services department. Further knowledge on the structure of the market is important to understanding the market for a security.

The subjects listed below only touch on high-level concepts of trading techniques, strategies and market structure. To find out more information, please see our Whitepapers.

From a trading perspective, liquidity is the ability of a security to be bought or sold without causing a significant movement in the price of the security.

Liquid securities may be bought and sold in large numbers without a dramatic movement in the price of the security.

The opposite is true for illiquid securities. Liquidity depends on a number of forces, including supply and demand, price transparency, trading history, market venue, market participants and freely tradable shares public float. The spread is one of the ways that broker-dealers, specifically market makers a type of broker-dealer that provides liquidity by quoting and trading both sides of the market , make money. In an ideal world, broker-dealers want to buy at the bid price and sell at the ask price.

Unfortunately for market makers, this scenario is not extremely common due to price volatility — movements in the price of a security. Volatility makes it possible for broker-dealers to lose money, providing liquidity to both sides of the market. Security purchases at the bid price can become unprofitable if the price quickly or significantly moves lower.

Therefore, spreads tend to be wider larger in very volatile or illiquid not easily tradable securities. Spreads are often a function of the amount of information available in a security. This information may come in the form of past trading data, news or company financials. If very little information is available in a security, spreads may be very large because the broker-dealer does not want to be caught off guard by a better-informed investor.

Pink Sheets & OTC Stocks | Scottrade

Conversely, active securities with current disclosure tend to have tighter spreads because broker-dealers believe they have sufficient knowledge of the company and the security to buy and sell with confidence. Investors are wise to pay attention to the spread of any security, and in particular, to those where the issuing company does not provide quality disclosure. Short selling is a trading strategy where an investor, believing that a security is over-valued, borrows from a broker-dealer or institutional investor and sells a security and then repurchases and returns to the broker-dealer or institutional investor the security at a lower price.

Short selling is a valid trading strategy; however, there are two important points that investors must remember: Short selling carries with it unlimited risk because the purchase price of a security can rise to any price point.

Conversely, long investors buyers may only lose the amount invested — if, for example, the security price drops to zero Short sellers are subject to price manipulation schemes — or short squeezes. These traders hope that the short sellers will be forced to buy pushing the price even higher at which point they can sell their shares at a profit.

Short squeezes are easier to execute in illiquid securities. See how regulation affects market structure and processes in Part 3 - Regulation. Company Directory Stock Screener. OTC Market Totals - Securities - Dollar Volume - Share Volume - Trades. Market — Trading As mentioned in the previous section, trading an OTCQX, OTCQB or Pink security is comparable to trading a security on NYSE or NASDAQ.

Investor Selects a Broker-Dealer — In order to execute a trade, an investor must select a FINRA-registered broker-dealer or multiple FINRA member broker-dealers.

Investor Makes an Investment Decision — All investment decisions should be based on thorough research on the company and security. For securities that trade on the OTCQX, OTCQB and Pink markets, investors can use www.

Over-The-Counter (OTC)

Investor Defines the Order — Investors define the order they wish the broker-dealer to execute. There are two main order types: Limit Orders allow investors to specify the exact price they are willing to accept for a buy or sell order. Broker-Dealer Executes the Order — Once a broker-dealer receives an order, it often goes through the following decisions as part of the trading process: Execute Trade Internally — Broker-dealers will typically first determine if they can or choose to execute the trade internally.

Marketable orders are orders where the price specified can immediately be executed in the market.

Market Orders are, by definition, marketable. Limit Orders are marketable if the limit price is less than or equal to the bid price for sell orders or greater than or equal to the ask price for buy orders i.

The quote communicates the price at which a broker-dealer is willing to buy or sell. Broker-dealers are only required to update their quote if the price of the order is equal or superior to their existing quote See FINRA Rule and Part 3 - Regulation. In many cases, a broker-dealer quote is the aggregation of a number of customer orders.

At that point the broker-dealer may accept, decline or counter send a different price or size the offer to trade. Broker-dealers are liable for their quote price and size, and those firms that decline liable orders are subject to penalties from FINRA.

This information is then disseminated by FINRA to the market. Additional Concepts Further knowledge on the structure of the market is important to understanding the market for a security.

Unraveling the Mystery of Over-the-Counter Trading | eqogypacuc.web.fc2.com

Liquidity From a trading perspective, liquidity is the ability of a security to be bought or sold without causing a significant movement in the price of the security.

Short Selling Short selling is a trading strategy where an investor, believing that a security is over-valued, borrows from a broker-dealer or institutional investor and sells a security and then repurchases and returns to the broker-dealer or institutional investor the security at a lower price.

Short squeezes are easier to execute in illiquid securities See how regulation affects market structure and processes in Part 3 - Regulation.