Over the Counter Trading
Introduction
Over-the-counter trading is the act of dealing buy or sell executions of the instrument without using a centralized exchange. It involves transactions through a dealer network with no physical presence, and all the trading is conducted electronically. The dealers are also market makers, where they are responsible for providing quotes. The trades are hidden from other participants along with the prices.
Available Assets at Over the Counter trading
These markets list instruments ranging from stocks, debt securities, bonds, etc. Many equities that are unable to be registered on exchanges, due to the required processes, can be placed on OTC networks. They are called unlisted stocks and consist of instruments with a low financial value. Some securities are available on both OTC and regular exchanges.
What are OTC networks?
OTC networks are responsible for providing quotes and trading services for those who wish to trade these instruments. The most popular ones are the Financial Industry Regulation Authority (FINRA) and Over the Counter market groups in the USA. It is possible to use an online network or a telephone line to perform your transactions.
Although they are not regulated, OTC networks might still have some eligibility requirements. An excellent example is the minimum $5 value threshold for listing stocks on the OTCQX marketplace. Some companies may also have to report to the Securities and Exchange Commission (SEC).
Pink sheet otc or OTCPK is another category of securities that do not require any form of regulation and are therefore subject to more price manipulations and scams.
OTCQB is a bulletin board that has less legitimacy than OTCQX, and is responsible for storing companies with less transparency. Grey sheets or GREY is a death zone for stocks, as they come under a red flag. It is not advised to trade these baskets of securities.
What are the steps needed to trade OTC?
With the developments in the fintech industry and communication networks, a trader can do otc market trading from the comfort of their home in four simple steps:
Find an appropriate brokerage that offers OTC trading at a low cost.
Open up your account by providing essential credentials. Some brokerages may require additional verification documents due to their KYC policies.
Fund your account through the available deposit methods.
Start executing your trades by using an appropriate trading plan. Make sure that you employ sound risk management and trade with the right mindset.
Good examples of OTC stocks include: PB financial corporation PBNC, Greyscale bitcoin trust GBTC, and Teranga gold cooperation TGDCF, to name a few.
Advantages of OTC
We can summarize the benefits of Over the Counter markets as follows:
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Costs. Companies may have to pay up to $200,000 per year to list their companies on the NYSE or any other stock exchanges. With OTC markets, firms do not have to worry about any charges and can provide their shares for sale without administrative fees, which would not be possible via regulated exchanges.
Small companies. Firms with a smaller market cap can offer themselves to the general public.
Instruments. You can trade bonds, derivates, or other assets which cannot be traded on regulated exchanges.
Return. Trading penny stocks or instruments with low value can provide a good ROI.
Risks of OTC
There are some major risks in these markets. A trader must trade them very cautiously to avoid any potential loss of equity:
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No transparency. Due to the lack of transparency, these markets are constantly subjected to varying degrees of volatility and liquidity. A good example is the financial crash of 2008.
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Price manipulation. A single company that aggressively buys or sells its shares can significantly increase or decrease the share price, as the market cap is lower. There can also be manipulation from the dealer's end to some extent.
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Shady practices. As soon as you start investing in otc trading, you will discover companies misleading investors with their fake portfolios. It might be complex to trade based on fundamentals.
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Spreads and liquidity. Trading in environments where the liquidity fluctuates greatly can cause extreme slippages. You may not find anyone to sell your position to if you are in profit, or willing to sell if you want to buy. The spreads are also wide, meaning it'll take more time before you finally see your trade in the green.
About Forex Copier
Forex Copier is an automated software that helps you copy your trades on the same or different PCs. It has two versions:
Forex Copier remote 2 for copying trades remotely from one MetaTrader® platform to another.
Forex Copier 3 copies trade between MetaTrader® platforms on similar PCs.
The copy trading software has many valuable features, including lot/risk management, price adjustments, order filtering, tweaking SL/TP, and emergency stops to help you get an easy edge in the industry. It is possible to diversify your trading accounts and brokers by distributing your equity over several portfolios and using the auto trade copier to copy positions from one account to all of the others. You can also choose to sell subscriptions to your signals and EAs to investors worldwide, with or without access to their login credentials.
The scope here is unlimited, as the Forex Copier can help gurus in teaching by sharing their executions. For traders on a losing streak, the mirror trading software offers a reverse mode that turns all incoming buys into sales and vice versa with modifications of the exit and entry points.
