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The following are a few web sites which have good information on trading
Pink Sheets (OTC) and Nasdaq Over-the-Counter Bulletin Board (OTCBB) stocks:
OTC Trading Presents Great Opportunities, But Inherent Risks Too!
The OTCBB
can be a fantastic opportunity to uncover companies not yet discovered
by main stream Wall Street. However, there are certain strategies and
windows of opportunity one should consider when looking to invest in Bulletin
Board listed Securities. We hope you find the following information both
useful and valuable in your efforts to create maximum returns on your
investments with OTCBB Stocks.
Why
Focus on OTC and OTC Bulletin Board Stocks?
As our name
OTCPicks.com implies, we focus on providing our members with information
on microcap stocks within the OTC markets. Our goal is to help supply
our members with information on micro cap stocks that we believe have
significant upside potential for investors. Microcap stocks are generally
considered to be companies with market caps of less than $100 million.
These stocks are not followed by Wall Street Money Managers or the main
stream financial press, so you would have difficulty finding out about
them yourself.
Most of
the companies we feature trade on the OTC Bulletin Board. For those of
you that are on not familiar with the four levels of the OTC, they are
as follows:
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NASDAQ
NATIONAL MARKET (NMS) |
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NASDAQ
SMALL CAP |
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OTC
BULLETIN BOARD |
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OTC
PINK SHEETS |
In order
for a stock to trade on the NMS it must meet certain minimums qualifications.
The Small Cap requirements are a little lower. The minimum requirement
for the Bulletin Board is that the company be fully reporting, and in
the Pink Sheets companies can be non-reporting. Pink Sheet stocks are
not electronically quoted so the market can be hard to follow.
The Bulletin
Board has very little institutional participation, but it is growing.
Regulations that were put into effect in the Spring of 1999 forced micro
cap companies to become fully reporting or be delisted down to the Pink
Sheets until they obtained full reporting status. In recent years the
NASD has increased the minimum requirements for companies apply for a
Small Cap listing. Today's Bulletin Board is becoming the equivalent
of what the NASDAQ Small Cap used to be.
We find
the OTC Bulletin Board a very attractive place for individual investors.
Institutions generally don't trade here, so the playing field is more
level for the individual. The companies tend to have smaller public floats
and lower market capitalizations, allowing for more upside potential when
a company achieves success. Smaller public floats lend themselves to greater
volatility to both the upside and downside.
The stocks
which trade on the OTC Bulletin Board are generally not marginable. This
has two advantages to the individual investor- you cannot over leverage
your account, and individual investors cannot short the stocks, which
helps alleviate selling pressure.
In the past
the OTC Bulletin Board had a well deserved reputation as a haven for scam
artists. The recent changes in the qualification regulations and the stringent
review process the SEC has placed on Companies in order to maintain their
listings has helped clean this problem up considerably. Today, even the
smallest of OTC Bulletin Board companies is subject to the exact same
reporting requirements as Microsoft or General Motors, and this is resulting
in a much greater flow of institutional participation in Bulletin Board
stock investing.
Investors
don't mind risks, but the risk has to have upside potential. Too many
companies with $3 million in trailing sales and substantial losses are
trading at $1/2 billion market caps. Institutional investors are uncovering
companies with the same financial performance, but with $50 million market
caps on the bulletin board. Often times these companies are not as well
financed as their NASDAQ counterparts, so institutions are providing capital
at price levels that provide acceptable upside potential.
There are
over 4,000 stocks trading on the Bulletin Board today. Proactive public
companies without a Wall Street following care about creating interest
in their stock. As they grow they might require another round of financing.
The better their stock trades the less dilution existing shareholders
will suffer. This is where companies like OTCPicks.com can help. We assist
companies in getting their message out to investors and in helping to
create a market for their stocks with higher trading volumes and hopefully
significant appreciation in their stock value. This is of course mostly
in the hands of you, the investor, and how you view that company's
prospects moving forward. We are here to help provide you with information
on these OTC companies so that you have more information with which you
can make an informed investment decision.
Defensive
OTC Trading Strategies - Using the Gap
A good strategy
to use in OTC stock trading is to allocate a certain portion of your capital
to a stock you want to own. Start out by only investing 1/4 of the total
amount you are prepared to commit. That way you can add to the position
if the stock trades lower and take advantage of other people's weakness.
This only applies to investors that are prepared to hold for at least
four to six months. If you view yourself as a short term trader you must
follow the short term trends.
A very important
rule in stock trading, particularly with thinly traded OTC stocks is never
buy a stock at the market when it Gaps Open. A Gap occurs when a stock
opens at a much higher price than it closed at the previous day. 90% of
the time that stock will drop back down and fill the gap. Market Makers
have been using gaps to line their pockets with money from investors for
years.
When
market makers have market orders for a stock at the open, they will often
take the stock up, fill the market orders at the higher price by shorting
it to investors, and then drive the price back down. Then when they have
scared enough people into selling, they cover their short and walk away
with a tidy trading profit. |
