Wondering what OTC Markets, over-the-counter stocks or “pinks sheet” listings are? We walk through what you need to know including what “OTC” means, which Canadian trading platforms provide access to OTC stocks and the risks involved with trading these types of stocks.
What are OTC stocks?
OTC (“over-the-counter”) stocks are traded by broker-dealers off major, centralized exchanges like the NASDAQ, NYSE and the TSX. Broker-dealers are individuals or investment firms that trade stocks for their own portfolios or the portfolios of their clients. OTC stocks trade on 1 of 3 markets managed by the OTC Markets Group (see below).
Many OTC stocks are penny stocks in companies that are just getting off the ground. As the name suggests, these stocks cost just pennies or several dollars to buy.
Other stocks are listed in OTC Markets because companies have been delisted from major exchanges. This could be because businesses have decided to go private or, in rare cases, have been forced off exchanges for failing to adhere to rules set by stock exchange regulators or the US Securities and Exchange Commission (SEC).
Even if a company isn’t entirely delisted, it could still choose to delist certain classes of its stock. In which case, those stocks could end up being traded over the counter.
OTC stocks are usually considered high-risk. On one hand, you can buy dirt cheap stocks and see your holdings rise in value significantly. On the other hand, many of these companies are in volatile positions, so the odds of profiting can be slim. That being said, there are lots of companies that choose to trade over the counter—usually to keep costs down—but the stocks on offer aren’t penny stocks.
What is OTC Markets?
OTC stocks are listed in 1 of 3 markets owned and managed by the OTC Markets Group, which facilitates more than $400 billion worth of trades annually.
- OTCQX. This is the highest level on which OTC stocks can trade. The standard for qualifying to trade on the OTCQX platform is more strict than for either of the other 2 platforms. Many stocks listed on the OTCQX are for blue-chip companies in Canada, Europe, Brazil and Russia. Examples include Heineken N.V. (HINKF), Deutsche Telekom AG (DTEGF) and adidas AG (ADDDF).
- OTCQB (The Venture Market). This is the mid-tier platform on which OTC stocks can trade. Most of the stocks listed on this platform are for young and growing companies in the US and other countries. Examples include Liberty Broadband Corporation (LBRDB), Canada Nickel Company Inc. (CNIKF) and Federal Home Loan Mortgage Corporation (FMCC) “Freddie Mac.”
- OTC Pink. This is the bottom platform on which OTC stocks trade. Out of the 3 platforms, OTC Pink has the lowest qualification requirements. Stocks that don’t qualify for the OTCQX or OTCQB are by default listed on this market. Companies do not have to disclose any information on OTC Pink stocks. As such, these stocks are considered the most risky.
The system OTC Markets uses to facilitate trades is called OTC Link, which is regulated by the US SEC. OTC Link is registered as a broker-dealer and an Alternative Trading System and is also a member of the Financial Industry Regulatory Authority (FINRA) in the US.
Where did OTC Markets and “pink sheets” come from?
Formerly known as the National Quotation Bureau (NQB), OTC Markets was created in 1913 and is headquartered in New York City. The NQB listed the prices of stocks and bonds on pink and yellow papers. This is how the term “pink sheets” came to be used to refer to stocks listed on over-the-counter markets.
The NQB was renamed Pink Sheets LLC in 2000 and again to OTC Markets Group in 2011.
Examples of OTC stocks
There are more than 12,000 stocks on OTC Markets. Some are on it to avoid filing with the SEC, while others may have been delisted from other exchanges. Some companies with stocks listed on OTC Markets include:
- Grayscale Ethereum Trust (ETHE)
- Nestlé S.A. (NSRGY)
- Nissan Motor Co., Ltd. (NSANY)
- Toronto-Dominion Bank (TORDF)
- Enbridge Inc. (EBBNF)
- Alimentation Couche-Tard Inc. (ANCUF)
- Volkswagen AG (VWAGY)
- Canadian Imperial Bank of Commerce (CCIXF)—CIBC
How to buy OTC stocks
- Get a broker. Not all brokers let you buy stocks on OTC Markets, so you need to check with your chosen broker. From the ones we’ve reviewed on our site, Questrade, Qtrade and Interactive Brokers let you trade OTC stocks.
- Fund your account. Your broker can walk you through this. Make sure you have enough to cover the position you want to open.
- Research, research, research. You need to make sure you do plenty of research into the stocks you want to invest in.
- Find the stock on your chosen platform. Just type in its ticker symbol or company name (for example: VWAGY for Volkswagen).
- Buy your over-the-counter stock. You’re good to go!
Which Canadian stock trading platforms let you trade OTC stocks?
While some Canadian stock trading platforms, like Wealthsimple, don’t provide access to OTC Markets stocks, many do. You can trade OTC stocks through the platforms below.
Be aware that certain platforms may restrict OTC Markets transactions. For example, as of the time of writing, CIBC Investor’s Edge only allows OTC Market trades to be executed with a live representative; you can’t initiate a trade yourself through an online account. Additionally, CIBC doesn’t allow OTC stock trading through registered accounts like RRSPs and TFSAs. So, if you want to trade OTC stocks with CIBC Investor’s Edge, you’ll have to open a non-registered investment account.
OTC stocks vs. penny stocks
These terms are sometimes used interchangeably, but there’s a key difference. OTC stocks are stocks that are listed on one of the markets owned by the OTC Markets Group. Penny stocks refers to stocks that are priced particularly low, usually under USD $5.
Some penny stocks trade on well known stock exchanges such as NASDAQ or TSX. OTC stocks may be cheaper but don’t necessarily count as penny stocks.
The risks of trading OTC stocks
OTC stocks and penny stocks are more risky than traditional stocks. There aren’t as many regulations or requirements governing these stocks, and it can be difficult to research on your own as companies don’t need to release as much financial information as would be required for stocks listed on a major exchange.
As these stocks are frequently traded and are thus considered to be “thinly traded stocks,” it can be difficult to make a profit.
Over-the-counter stocks can be a great opportunity for investors, but it’s also risky. Companies aren’t held to the same reporting standards for OTC stocks as for traditionally-listed stocks, making it harder to research and discover which stocks are actually good investments. Double check that your trading platform lets you trade OTC stocks, and make sure you know the fees involved before moving forward.
To learn more about online stock trading, check out our detailed guide.
More on investing
We look at 6 popular stock discussion groups from Canada and overseas.Read more…
We’ve rounded up the top dividend stocks in Canada. Check out current stock prices, historical stock performance, company info and more.Read more…
Find out how to short the NASDAQ, the world’s second largest stock exchange, with inverse exchange-traded funds (ETFs) or derivatives.Read more…
Protect your international stock portfolio from currency fluctuations by hedging your investments.Read more…
Investing in renewable energy isn’t just good for the planet—it can be good for your portfolio too.Read more…
More guides on Finder
Top Canadian stock discussion forums in 2021
We look at 6 popular stock discussion groups from Canada and overseas.
Best dividend stocks in Canada
We’ve rounded up the top dividend stocks in Canada. Check out current stock prices, historical stock performance, company info and more.
How to short the Nasdaq
Find out how to short the NASDAQ, the world’s second largest stock exchange, with inverse exchange-traded funds (ETFs) or derivatives.
How to master international stock trading with currency hedging
Protect your international stock portfolio from currency fluctuations by hedging your investments.
How to invest in renewables
Investing in renewable energy isn’t just good for the planet—it can be good for your portfolio too.
Electric vehicle (EV) stocks to watch and how to invest
We take a closer look at 6 popular EV stocks and what these stocks can offer Canadian investors.
Investing in pipeline stocks
Benefits and risks to consider before you invest in pipeline stocks.
Investing in pharmaceutical stocks
Benefits and drawbacks to consider before you invest in pharma stocks.
How to buy stocks in a company
Are you looking to buy stocks in a Canadian company? This beginner’s guide tells you what you need to do to buy stocks easily.
Investing strategy: How growth stocks can make you money
Learn how to strategically find and invest in booming companies.
Ask an Expert
You must be logged in to post a comment.