Hiding among the many Over the Counter Bulletin Board (OTCBB) stocks is the next Apple or Exxon. Also known as penny stocks, these companies do not have the reporting requirements or regulatory oversight found with NYSE and Nasdaq stocks. Investors interested in trading OTCBB stocks should thoroughly research a company before buying to ensure it is worth the money.
Do Some Online Research
Search online for inexpensive online stock brokerage firms, compare commission rates and read the fine print closely. Many OTCBB stocks are priced under a penny a share, so make sure you are not charged an additional fee for trading large orders. Be sure the firm has a good stock screener and research center. Open an account online and request a demo account at the same time ... you'll need both.
Search for Specific Market Segment
Using the stock screener, enter your search criteria, and use the sector criteria to zero in on a particular market segment of interest, such as information technology or energy. Many OTCBB stocks are undercapitalized, so don’t expect your search to return any mid-cap or large-cap companies. Print out or save your search results.
Check the Delinquency List
Open a new window and go to the website for the Financial Industry Regulatory Authority (FINRA). Find FINRA’s Delinquency List, which identifies companies that are no longer eligible to be listed on the OTCBB. Be sure your company is not listed.
Use your firm’s research center or go to the company’s website to find its financial information. It should list the board of directors and company executives, and it might even contain positive or negative information that could help you decide whether to invest.
Practice with Online Demo Account
Start using the demo account trading platform to learn how it works. You can review the tutorials or contact customer service if you have any questions. Pull up a chart of the stock and observe the stock’s price and trading activity.
By using indicators, including trend lines and support and resistance lines, you can find potential trading opportunities. Record your demo trades in a journal and analyze each one to understand why a trading strategy succeeded or failed.
Fund Your Live Account
After you fund your live account, it's time to wait for a trading opportunity. Enter the trade and wait for broker confirmation that the trade was successfully completed. If you're day-trading, monitor the trade daily and be ready to exit if the trade makes a profit or turns a loss. If you're seeking long-term gains, check on the stock's progress at least once a month.
Your Profit Expectations
Keep your profit expectations real. If the stock has an average trade range of $0.0002, use that as your target profit. Don’t expect a stock selling for $0.0004 to jump to $10 a share during a trading session.
Even though FINRA and the Securities and Exchange Commission (SEC) are responsible for regulating and overseeing the OTCBB, be aware of “pump and dump” get-rich-quick-in-OTCBB stock schemes, which are illegal scams. If it sounds too good to be true, it probably is.
- Keep your profit expectations real. If the stock has an average trade range of $0.0002, use that as your target profit. Don’t expect a stock selling for $0.0004 to jump to $10 a share during a trading session.
- FINRA and the Securities and Exchange Commission (SEC) are responsible for regulating and overseeing the OTCBB.
- Don’t fall for the “pump and dump” get-rich-quick-in-OTCBB stock schemes. If it sounds too good to be true, it probably is.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.