OTC Stocks or over the counter stocks are usually offered by startup companies who have not yet met the requirements needed to be publicly listed in registered stock exchange companies. OTC stocks are offered through Pink Sheets or Over the Counter Bulletin Board or OTCBB.

Since OTC stocks are not stocks being issued by publicly listed companies in the stock exchange, the process of buying this specific stock is different also. Since OTC stocks are not listed, all the orders and transactions should go through the market maker, which is a dealer-broker firm that holds a specific number of shares in order to make possible the process of trading that security. Market makers get their customers by displaying the buy and sell quotes for the shares that they have.

If the customer already selected which stocks to buy and how many, he will order it from the market maker who will then pull the stock in subject from his inventory or match it with another order to offset it. The whole process might seem complicated, but it takes place in only seconds.

The first step that a buyer or investor must undertake before he can buy OTC stocks is to open an account with a brokerage firm. In choosing your broker, keep in mind that not all brokers are eligible to trade in OTCBB. The broker will work with the market maker to ensure that all transactions are completed successfully.

The transaction will go like this: if an investor wants to buy an OTC stock. The buyer must tell his broker about the specifics of his order. The broker must now contact the specific market maker of the security in subject. The market maker will now disclose the ask price to the broker. The ask price is the amount that the seller is willing to sell the stock. Bid quotes and ask quotes can also be monitored through the OCTBB.

Since the offer is a market order, the price quoted should be accepted by the broker. For the payment, the broker must transfer the funds to the market makers account which in turn will be credited to the specific securities. Investors also have the power to set price limits by placing limit or stop orders for OTC stocks.

Buying and selling OTC stocks can be tricky at first, but you will surely get the hang of it in the long run. Keep in mind that investing in OTC stocks is very risky so you must exercise caution and vigilance in dealing with these. Companies who are offering OTC stocks are relatively small companies, most of which have net asset sizes of less than $50 million.

Also, these companies are not publicly listed, meaning they do not file their financial statements with the Securities and Exchange Commission (SEC) so there is no way the public can get access to these documents.

If you are serious about dealing with OTC stocks, you must educate yourself well. Learn from online sites and experts with the matter. Make sure the information that you get is from credible sources and updated.