UNITED STATES—In the past year, investing has become one of America’s favorite pastimes. While positive sentiment for the global economy has driven recent gains, retail investors have played a significant role.
Armed with easy-to-use apps like Robinhood, these new players have pumped up stocks across the board. These benefactors have included unlikely firms like Hertz, AMC Theaters, and Game Stop. But for those with modest means, it’s tough to establish a significant position.
That’s where OTC markets come into play. Many stocks here trade for less than 1.00/share. Because of this, investors can scoop up hundreds at a time. However, if major stock exchanges are like the UFC, then the OTC market is like the Thunderdome. With little regulation, you can lose your shirt if you’re not careful.
Still in? In this post, we’ll run down everything you need to know about the OTC markets. Then, we’ll talk about a few OTC stocks that are currently making moves.
What is the OTC Market?
The OTC in OTC market stands for over-the-counter. It’s a trading venue that has no centralized exchange – instead, investors and dealers conduct trades with each other. In the old days, you’d pick up the phone and call a broker that dealt in OTC equities. Today, these transactions are primarily done online.
So, the OTC market is a platform that cuts out the middleman – sounds good, right? If only it were that simple. You see, unlike mainstream exchanges like NASDAQ and the NYSE, the OTC market has no real regulations.
For this reason, it’s important to approach OTC investing with extra care & caution. Never invest what you cannot afford to lose, and limit your positions to 2 percent-10 percent of your portfolio.
What are OTC Stocks?
As you can probably guess, OTC stocks are equities traded on over-the-counter exchanges. However, there’s more to these shares than that. Over the years, pump-and-dumpers, who target cheap equities in their schemes, have given the OTC market a terrible reputation. To combat this stigma, the platform now categorizes its stocks.
OTCQX, OTCQB, and the “Pink Sheets” are the three main tiers of OTC trading. OTCQX is the category with the most stringent requirements – to get listed here, companies must comply with all American securities laws.
Behind OTCQX is OTCQB. Also known as the venture market, it’s popular among startups that cannot yet meet the financial requirements laid out by major stock exchanges. With no burdensome fees to pay, they only need to meet SEC reporting requirements to stay listed on the OTCQB.
And then there are the Pink Sheets. These are the stocks that give the OTC market its checkered reputation. To obtain a pink sheet listing, there are minimal requirements. Mainstream pink sheet equities offer incomplete information and are not obligated to update this data per SEC guidelines.
Some pink sheet firms offer absolutely NO information on their operations. These firms occupy the dark tier on OTC trading platforms. At the very bottom are “toxic tier” equities – these are securities of companies that have engaged in unethical practices.
Where can I Trade OTC Stocks?
Trading OTC equities has never been easier. In the past, you had to call brokers that dealt in these securities. Today, many major brokerages allow traders to execute OTC orders on their platforms.
These brokers include big names like Charles Schwab, TD Ameritrade, and Interactive Brokers. Serious penny stock traders favor platforms like Charles Schwab and Fidelity Investments, as they offer fee-free OTC trades.
Special note: Robinhood does NOT allow OTC trades on its platform. So, if you are on this app, you’ll need to make an account with another brokerage to buy OTC stocks.
What OTC Stocks are Hot Right Now?
Now that you know the basics behind the OTC market, there’s only one thing left to do – buy lots of stocks. However, with countless equities out there, it can be hard to know where to start.
So let us get you off to a good start. Below, we’ll briefly discuss stocks making waves in the OTC pool.
HUMBL (OTCMKTS:TSNPD [soon-to-be OTCMKTS:HMBL])
Back in November, TSNP, a stock for an unspectacular building materials company in Connecticut, suddenly drew a significant amount of investor interest. Usually when this happens, it’s a classic pump-and-dump.
Not this time. Instead, a reverse merger triggered the buying frenzy. HUMBL, a blockchain fintech startup, was TSNP’s suitor. Unlike TSNP, HUMBL is an actual business that has plans to disrupt the payment industry in the developing world.
Brian Foote, an executive with decades of experience in Silicon Valley, is HUMBL’s CEO. Through his knowledge of the blockchain, this company has a real shot at establishing significant market share in neglected markets worldwide.
Recently, TSNP stock underwent a reverse stock split that reduced outstanding shares. By late March, they’ll trade as HMBL. And just this week, they acquired Tickeri, Inc., a ticket-selling platform that focuses on events in Latin America and the Caribbean.
Cielo Waste Solutions (OTCMKTS: CWSFF)
This firm addresses two sustainability crises – waste and carbon-intensive aviation fuel. In recent years, nations like Canada have gotten egg on their face for shipping garbage to developing countries. In short, we are running out of places to bury our trash.
Meanwhile, the climate crisis grinds on. While converting our car fleet will make a big dent in global carbon emissions, there is the issue of plane emissions. Sadly, electric plane technology is still quite a bit primitive, so airlines are currently spewing millions of tons of carbon into the atmosphere daily.
This is where CWSFF (or Cielo Waste Solutions) comes in. This Alberta-based company has technology that can take landfill waste and convert it into high-quality diesel and kerosene – that includes aviation fuel.
If CWSFF can scale their tech fast, we’ll significantly reduce the carbon footprint of the aviation industry.
CytoDyn (OTCMKTS: CYDY)
It’s been a year since COVID-19 turned our world upside down. Ever since, biotech firms all over the world have been working hard on treatments and vaccines. These efforts have borne fruit for companies like Moderna, one of the big winners of the vaccine race.
But with constant mutations, this Coronavirus will likely be with us for some time. So, the better we treat this disease, the sooner we can get back to normal. That’s what makes the work of CytoDyn (CYDY) so exciting.
For months, they’ve researched whether Leronlimab, its proprietary monoclonal antibody, was effective against COVID-19. So far, results have been positive, feeding rumors of its potential approval as a treatment by the FDA, Health Canada, and other government bodies.
Hedge Your Risks, Then Trade OTC
You’ll find scams anywhere value changes hands – including on major stock exchanges. Yes, the risks are higher on OTC markets, but so is your profit potential. Play with money you can afford to lose, trust your research, and then trade OTC. With a little luck, you might be reaping the gains that you’ve read about.