Listed or OTC Stocks: Key Takeaways
- Which reigns superior — listed or OTC stocks? Matt and Kyle face off!
- See the biggest pros and cons of each so you can decide which best suits your trading style…
- And see which stocks offer the most potential for a small account…
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Which is better — listed or OTC stocks? The short answer: it depends. To help you answer which is better for YOUR strategy, millionaire traders and Trading Challenge moderators Kyle Williams and Matthew Monaco weigh in.
Read on to learn the key differences in listed and OTC stocks straight from Matt and Kyle!
OTC and Listed Stocks: What’s the Difference?
Hey, Matt here.
Today, Kyle and I break down the differences between OTC and listed stocks. We’ll also go over some pros and cons for each type of stock.
But before we get into any of that, let’s cover some basics. Listed stocks trade on one of three exchanges:
- Nasdaq
- New York Stock Exchange (NYSE)
- American Stock Exchange (AMEX)
Listed stocks have to stick to a lot of regulations to stay on a major exchange. So they must file regularly with the SEC and maintain a minimum bid price.
OTC stocks don’t have the same stringent requirements. That’s what makes them so sketchy. There are three tiers for OTC stocks:
- Pink sheets
- OTCQB
- OTCQX
Each tier comes with different filing requirements. Pink sheets have little to no filing requirements. OTCQX stocks have the most.
Since I trade both OTCs and listed stocks, I’ll cover listed stocks. Kyle’s primarily an OTC trader, so he’ll dig into what you should know about OTCs.
Listed Stocks: Pros and Cons
As a trader, I like to go where I find the best action. So I flip between trading OTCs and listed stocks. I trade the stocks that offer the most opportunities and always look for big percent gainers.
- Pro: Commission-Free Trading. Most brokers offer commission-free trading for listed stocks. That’s great if you have a small account. You don’t have to worry about fees eating into your potential profits.
- Pro: Liquidity. Listed stocks trade high volume. That means you can enter and exit trades easily. And you can get filled almost instantly — even with a limit order.
- Con: After-Hours Trading. This isn’t always a bad thing. It depends on your strategy. Some traders love to trade in premarket and after hours. But if you hold a listed stock overnight, there are risks. The company could do an offering. You don’t want to get caught in that situation.
OTC Stocks: The Good and the Bad
Kyle here. I’m mostly an OTC trader. I usually trade OTCs about 80% of the time and listed about 20%. But when the OTC market slows down, it evens out to about 50/50.
You have to constantly evaluate the markets and adapt. Here’s what I like about OTCs. But like anything, there are always good and bad factors to consider. Here’s a quick lowdown:
- Good: They’re Easier for New Traders. OTCs move slower than listed stocks. I think that makes it easier to read price action. Listed stocks can move FAST and overwhelm new traders. OTCs aren’t as choppy as listed stocks. They trade smoother and have cleaner charts. They’re also lower-priced, which is great for small accounts.
- Good: No After-Hours Trading. I live on the West Coast so the market opens at 6:30 a.m. I’d have to get up at 3:30 or 4:30 a.m. to watch premarket. No thanks. And by the time the market closes, I’m done. If I hold an OTC overnight, I don’t have to think about it until the market opens the next day.
- Bad: Hard to Fill Orders. Again, OTCs don’t have the same liquidity as listed stocks. That means it can be harder to get your order filled — VERY frustrating.
- Bad: Not Great for Stop Losses. Harder to fill orders also means your stop loss might not get executed. I use mental stops, so it’s not a huge deal for me. It really depends on how closely you can watch the market.
Listed vs. OTC Stocks: What’s Right for You?
You’re the only one who can answer this question. It comes down to your trading style, schedule, account size, and experience.
Traders like Matt and me often learn to trade both, even if we have a strong preference. Sometimes listed and OTCs stocks run hot at the same time. Other times they shift back and forth. It all depends on the sector and overall market momentum.
Find what works best for you.
Hope this helped you, and don’t forget — the TWIST podcast is back! Matt doesn’t want to hang with cool traders anymore (kidding!), so Mariana’s taking his place. New episodes drop on Saturdays.
Check out the latest TWIST episode here.
You can also catch us every trading day in the Small Cap Rockets and Breakouts and Breakdowns chat rooms on StocksToTrade.
Get the same education we both received from Tim Sykes — apply for his Trading Challenge.
What do you prefer — listed or OTC stocks? Let us know in the comments!
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