If you’ve been interested in trading in the stock market, it’s important to know your options. While it’s possible to make money, it also requires that you learn how the market works and what your profit and loss potentials are. With little money to invest or if you’re new to trading, you may want to consider over-the-counter stocks to up your comfort level and get a better handle of trading. Here’s everything you need to know about OTC stocks and how they differ from the stock exchange.

What Are OTC Stocks?

An OTC stock is offered by smaller companies that choose to remain unlisted on larger exchanges. You can usually get OTC stocks for fewer than five dollars per share. It’s an affordable way to invest in the stock market, as long as you understand the risks of doing so. Because of the low cost, OTC stocks are also called penny stocks, and they’re a viable option for traders who will watch the market closely or put a cap on their spending should the value of the stock change significantly.

Advantages of Purchasing OTC Stocks

Both seasoned investors and those new to the scene can benefit from trading in OTC stocks. Some advantages include:

• You don’t have to spend a lot of money. If you only have a certain amount of money to spend, dealing in OTC stocks are a great option because each share is low in price. You can invest only the amount of money that matches your comfort level.
• You may not lose a lot of money. While it’s possible to lose a significant amount of money if you’ve purchased a substantial number of penny stocks, you are only set to lose as much as you put in. If you only invest $10, that’s the most you’ll lose if your OTC stock’s value plummets.
• It’s possible to make a sizable amount of money. Because OTC stocks are traded at a low price, the prices can fluctuate quickly. However, if you pay close attention to the market, you may be able to trade at the best time, so you either make a fair amount of money.

Difference Between OTC Stocks and Traditional Stocks

When you’re working hard to earn more money, the stock market is very appealing. If you want to minimize your risk and maximize your reward, it’s important to know the difference between OTC and traditional stocks, including:

• While traditional stocks take place on the stock exchange in one place, OTC stock trades occur online directly between two parties.
• There are fewer regulations on OTC stocks, which means you can have a more direct line to the other party and gather more information about the stocks. However, this also means there is less security in where your money goes.

OTC stocks can be appealing because you’d typically put in only as much as you’re willing to lose. OTC stocks are great to start with because you can invest low to gauge your interest in the stock trade before moving on to bigger investments with more risk.