In finance, “over-the-counter,” or OTC, refers to trading securities directly between two parties without using a major exchange like the NYSE or Nasdaq. Contrary to what the phrase might suggest, OTC trading in the U.S. still happens on specialized marketplaces—just not on the large stock exchanges. More than 12,000 different securities trade OTC, and companies choose this path for various reasons. Some don’t meet listing requirements, while others want greater flexibility or lower costs.
Although most people think of OTC in terms of stocks, you can also find bonds, derivatives, and even commodities such as gold or agricultural products trading OTC. In practice, OTC is a way to buy shares in firms that either aren’t eligible for a big exchange listing or prefer not to go through those formal channels.
The Three Main OTC Market Tiers
Even though many lump all OTC trading together, there are actually three distinct segments:
On the top tier (known as OTCQX), you’ll find companies that meet stricter reporting and oversight standards. Most are established foreign firms listed on their home exchanges but seeking U.S. dollar liquidity. A few U.S. companies use OTCQX as a stepping stone before moving to NYSE or Nasdaq.
The middle tier (OTCQB) hosts younger, growth-stage companies. They must file regular financial reports and comply with certain legal requirements, though they haven’t yet met all the criteria to trade on a major exchange.
The bottom tier (called Pink Sheets or OTC Pink) has minimal reporting requirements. While some legitimate small businesses trade here, many are penny-stock–style enterprises or shell companies with little real revenue. Transparency is very limited, and the risk of scams or misleading information is higher.
There’s also a so-called “grey market,” which isn’t an official OTC segment. It represents unofficial trades of shares that aren’t listed on any formal marketplace. Grey-market volume is very low, and verifying those transactions can be difficult.
What Securities Trade OTC?
OTC markets often feature stocks you won’t see on NYSE or Nasdaq. This includes large foreign companies that want access to U.S. capital but don’t meet all the requirements of a major exchange. You might find shares of well-known Asian technology firms or small cannabis businesses that still face restrictions listing on big U.S. exchanges.
OTC is also home to companies that simply don’t want or can’t afford the cost and bureaucracy of a full exchange listing. As a result, you’ll see both global names and tiny startups testing their ideas in OTC markets.
How to Buy OTC Stocks
Buying OTC stocks is nearly as straightforward as buying NYSE or Nasdaq shares. Most large brokers allow you to place orders for OTC shares. All you need is the correct ticker symbol (for example, “ABCD” rather than “ABCD-Q”), sufficient funds in your account, and a chosen order type (limit or market). From there, you trade just as you would any other stock.
Even though the mechanics are simple, it’s crucial to decide first whether an OTC stock makes sense for your portfolio. Some OTC shares may offer genuine growth opportunities, but many are speculative or fraudulent. Before you buy, dig into the company’s background: look for recent financials (if available), credible news coverage, and the management team’s track record. Often you’ll need to do more homework than you would for an exchange-listed stock.
Benefits and Risks of OTC Investing
Investing in OTC can be appealing because it gives you access to early-stage ventures and foreign firms that otherwise wouldn’t be available in the U.S. You might discover a promising startup before it goes public or tap into overseas companies without meeting NYSE/Nasdaq standards. The entry barrier is generally lower, and the procedures are less onerous.
On the flip side, OTC stocks often suffer low trading volume, so liquidity can be thin. Buying or selling a large block of shares might move the price significantly. Reporting standards are looser than on major exchanges, so getting reliable information about an OTC-listed company can be challenging. All this means transparency is limited—and the chance of encountering false or misleading data, or outright scams, is higher.
What Has Changed in 2025?
Regulators have increased scrutiny of OTC markets over the past year to improve transparency. In the U.S., FINRA (the Financial Industry Regulatory Authority) tightened rules around transaction reporting—especially for Pink Sheets stocks—requiring brokers to file more detailed, real-time data. In Europe, ESMA (the European Securities and Markets Authority) rolled out new guidance to harmonize OTC reporting across EU member states, so investors can compare information regardless of their country.
As a result, more small foreign companies—particularly from Southeast Asia and Eastern Europe—are choosing OTCQX or OTCQB to access U.S. dollars without the cost of a full NYSE/Nasdaq listing. At the same time, some U.S. microcaps left Pink Sheets in favor of OTCQB to gain at least a basic level of credibility through regular financial disclosures. Now, if you see a company labeled OTCQX or OTCQB, you can be more confident that its financials are published quarterly or semiannually.
How to Protect Yourself as an OTC Investor
Before buying any OTC stock, check which tier it belongs to. A ticker on OTCQX or OTCQB implies at least basic financial reporting. If it trades on Pink Sheets, demand extra evidence: hunt for the latest balance sheets, read reputable news articles, and verify whether the management team has a track record. In mid-2025, many brokers even display an “OTC Risk Score” for each ticker—this internal rating flags warnings about late filings, ongoing lawsuits, or unusual trading patterns.
When you place an order, use a limit order rather than a market order. In a low-liquidity environment, a market order can cause the price to spike or crash dramatically if only a few shares are available on the bid/ask queue. Start with a small position to confirm that you can sell later at a reasonable price. Finally, watch out for unsolicited “hot tips” or cold calls promising insider information—those scams still pop up, especially in Pink Sheets.
Is OTC Right for You?
OTC offers a useful alternative to major exchanges if you want exposure to foreign firms, early-stage startups, or niche industries (for example, cannabis or small biotech). You gain access and flexibility, but you sacrifice liquidity and transparency. Thanks to recent regulatory improvements, OTC has become somewhat safer in 2025, but it remains higher risk than trading on NYSE or Nasdaq.
If you’re a long-term investor who enjoys in-depth research and can tolerate volatility, OTC can be a valuable addition to your portfolio. If you need instant buy/sell capability, clear reporting, and tight oversight, sticking with a major exchange might be the better choice. Either way, success comes from understanding OTC’s unique risks and trading with caution and responsibility.
