What is OTC trading？

OTC (Over-the-Counter) trading refers to the buying and selling of securities that are not listed on major exchanges such as the NYSE or Nasdaq.

Instead of being traded through centralized exchanges, OTC securities are traded directly between brokers and dealers through a decentralized network.

What are OTC securities?

OTC securities can include:

  • Smaller public companies that do not meet listing requirements for major exchanges.

  • American Depositary Receipts (ADRs) for international companies.

These securities are typically quoted on electronic platforms operated by the OTC Markets Group, which classifies them into different tiers based on the level of financial disclosure and reporting. Eligible security types available on Longbridge may vary.

What are Pink Sheets?

Pink Sheets refer to one of the trading tiers under OTC Markets. They include securities that do not meet the disclosure or listing standards of higher-tier OTC markets.

OTC Markets Group categorizes securities into three main tiers:

  1. OTCQX (Best Market): For established, reputable companies that meet specific financial and governance standards.

  2. OTCQB (Venture Market): For early-stage and developing companies that report regularly to the SEC or equivalent regulators.

  3. Pink (Open Market): For companies with limited public information, including foreign issuers, small businesses, and distressed entities.

What are the risks of OTC and Pink Sheet trading?

Investing in OTC securities carries higher risk compared to exchange-listed stocks. Key considerations include:

  • Lower liquidity: Fewer buyers and sellers may make it harder to enter or exit a position.

  • Wider spreads: The difference between buy and sell prices is often larger.

  • Limited information: Some issuers do not file regular financial reports, making due diligence more difficult.

  • Volatility: Prices can fluctuate significantly due to low trading volumes and limited transparency.

Because of these risks, OTC securities are typically suited for experienced investors who understand the potential volatility and limited disclosure involved.

How are OTC orders executed?

  • OTC orders are routed through market makers that quote prices on the OTC Markets network.

  • Market orders and limit orders are generally supported, though execution speed and fill rates may vary due to lower liquidity.

  • Orders are executed against available market-maker quotes. Execution price and fill rate may vary depending on the quotes available at the time of your order.

Important reminders

  • Not all OTC securities are margin-eligible or available for short selling.

  • Corporate actions, dividends, or symbol changes for OTC securities may take longer to process.

  • Always review company disclosures on OTCMarkets.com before trading.

How to trade OTC securities from Longbridge?

OTC trading is not yet available. Coming soon — stay tuned!