In India how to buy OTC stocks in Stock Market?

OTC meaning

An OTC ( over-the-counter market ) means a decentralized market where the participants trade with each other directly, without the oversight of an exchange.

OTC Finance

  • In financial trading, OTC finance in an over-the-counter market is a market wherever financial securities are traded through a dealer network in opposition to monetary exchange, which is said to be exchange trading and is centralized
  • An OTC market isn't centralized and happens between 2 parties.

Over the Counter Market

  • The stock market is assessed as a secondary market. This means, you're not buying shares directly from the company, however getting them from alternative investors who are selling them on the exchange. Since over-the-counter stocks aren't listed on stock exchanges like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), they need their otc stock market.
  • Suppose you're an investor/trader, chances are better that you just have stocks in your portfolio. As an investor, you're probably to interact with the stock market through a Depository Participant (DP) or broker.
  • The fact that you're trading on the stock market suggests that you're buying and selling shares that are listed on the stock market conjointly called the secondary market. However, it's also doable for investors to get stocks that aren't listed on the stock exchange. are called unlisted stocks or over-the-counter stocks, these stocks will be purchased by investors from firms that aren't presently listed on the online share market.
  • in this article, let’s take a glance at what unlisted stocks are, and how you'll be able to access them over the counter stock market and purchase over-the-counter stocks in India.

OTC stock

  • There are thousands of companies that provide up their equity to investors to lift capital. this can be done by putting up their shares for purchase. but not all such businesses trade on the foremost stock exchanges like the NSE and also the BSE. There are or so 5000 companies listed on the BSE stock market (BSE) and a few 1600 companies listed on the National stock exchange (NSE). this can be far away from the businesses whose stock is listed within the markets.
  • These alternative stocks that aren't listed on the exchanges are known as Over counter stocks or otc stocks.

What are Over Counter Stocks?

  • Over-the-counter stocks are stocks that aren't listed on the stock exchanges as a result they are not meeting the demanding necessities set down for a listing by the exchanges. as an example, on the BSE, the listing criteria for small-funding firms need a minimum post-issue paid-up capital of Rs. three crores and a minimum capitalization of Rs. 5 crores. companies that don't meet these criteria will still issue shares however these shares can't be listed on the BSE. Similar rules apply to the NSE.
  • The stocks of such firms that aren't listed on the main stock exchanges will be bought from full-service brokers and are known as OTC stocks or penny stocks.
  • Usually, companies that enable you to buy over-the-counter stocks are much smaller in size than those listed, with market capitalizations of fifty million dollars or less.
  • These companies aren't listed on the stock market for a variety of reasons, like not meeting the necessities to do, therefore. people trading in otc stocks see potential in these companies because it is feasible that they're performing on products or technology which will be widespread and generate massive returns within the future. also noted as penny stocks, over-the-counter stocks tend to possess a lower share price still.

In India, How to buy OTC stocks in the stock market?

  • In India, Unlike traditional stocks, OTC  stocks cannot forever be bought using your online Demat account as otc stocks don't trade on the main exchanges. to buy otc stocks you'll want the services of a full-service broker. stock exchange brokers are of 2 types:

Full-service Brokers

  • Full-service brokers give the entire range of equities markets connected services from buying and selling of stocks to trading recommendations to portfolio management services. Full-service brokers have a physical presence in the form of offices within the geographies that they operate and this permits them to supply a much wider number of services.

Discount Brokers

  • Discount brokers enable users to trade the markets, typically employing a Demat account and an online trading platform. Most online brokers are discount brokers. they offer restricted services at a reduced fee.
  • Over-the-counter, stocks can therefore only be bought from full-service brokers as they need a physical presence in the areas they operate.

What are the most effective ways to buy over-the-counter stocks?

  • Since OTC stocks aren't listed on the stock market and have their otc stock market, you can't purchase them through those suggestions. However, some online discount brokers do provide the service that enables you to get over-the-counter stocks, though not all do. it's value doing all your good bit of analysis on the company and also the DP/broker.
  • A trader should be progressed to use to buy over-the-counter stocks. He will be able to additionally get similar services from offline brokers.
  • The caveat here is that since they're ex-directory on the stock exchange, processing time and process fees for otc stocks can be employed.
  • Individuals may buy over-the-counter stocks directly from the corporate through what's called a Direct Stock Purchase Plan (DSSP), whereby the corporate employs a 3rd party to handle the sale of those stocks.

Advantages and Disadvantages of over-the-counter stocks

Advantages

Away from the fast-paced world of stock exchanges, there's a thriving over-the-counter stock market where such penny stocks are actively traded. Individuals invest in OTC stocks because:

OTC stocks are at low-cost

  • They are also known as penny stocks because of their low costs. As a result, investors will probably get a large range of such stocks.
  • OTC trading offers companies that don’t meet stock market needs the chance to lift capital, which may facilitate fund enlargement and growth.
  • Shares that are listed OTC tend to be cheaper than those listed on a centralized exchange. As a result, you'll be able to get plenty of shares for a little amount of capital.

 Growth Potential

  • Some sensible OTC stocks have the potential of giving multi-bagger returns and as a result, investors are invariably on the lookout for such stocks. However, such stocks are only a few, and finding them requires plenty of careful analysis.

 Potentially restricted Risk

  • Many investors believe that since OTC stocks are low-cost with the potential for nice returns, this limits their drawback as a lower investment would mean probably lower loss.

Disadvantages

Lack of Transparency

  • Since OTC stocks don't seem to be listed on exchanges, they do not have to be compelled to follow necessary disclosure regulations, and as a result, little data is typically accessible to the investor concerning them.

  • In the absence of any reliable data concerning the company’s finances, it's troublesome to form knowledgeable investment choices.

 Lack of Liquidity

  • OTC stocks don't seem to be extremely liquid thanks to the little size of the institution. This suggests there's low volume once commerce AN otc stock.
  • AN investor is usually in danger of obtaining stuck with an OTC stock as he/she might not be able to notice a purchaser because of the low volumes.
  • By comparison, stocks listed on exchanges typically have healthy volumes and an investor will invariably notice a buyer or a seller for a decent stock.

Susceptible to Scams

  • OTC stocks are often the topic of scams like pump-and-dump schemes within which miscreants produce unethically promote.

  • OTC stocks use social media or electronic messaging services to lure gullible investors into buying them.

  • Once the value of the stock goes abreast of account of enough range of investors having bought it, the miscreants sell off their shares, leaving investors in the sway.

Conclusion

  • Over-the-counter or unlisted stocks are penny stocks of firms that aren't listed on the key stock exchanges. They're enticing because of their low costs and potential for quicker growth.
  • However, they additionally escort larger risks, lower trading volume, and a scarcity of knowledge concerning the financials of the underlying business.
  • They're additionally prone to scams like pump-and-dump schemes. However, some OTC stocks may be genuinely sensible investments. Several massive firms of these days started initial trading as penny or unlisted stocks.
  • Investors will change unlisted stocks provided they need to do their analysis and are positive of a specific company’s growth prospects. 
  • OTC stocks are treated with caution by investors because the proven fact that they're unlisted on the stock market exchange functions as a deterrent against the OTC stock market..
  • However, if you have got the specified data and skill to spot over-the-counter stocks with potential, you may be able to get in early before the stock hits the stock market.

FAQS

What is an example of the OTC market?

  • An example of an OTC market would be a trade that happens between 2 people that buy and sell a share of a corporation that's unlisted on an exchange. AN OTC market will contain any security, like equities, commodities, and derivatives.

What is over-the-counter trading?

  • Over-the-counter trading, or unlisted trading, refers to a trade that's not created on a proper exchange. Instead, most otc trades are going to be between 2 parties, and are usually handled via a dealer network.
  • OTC Trading is a smaller amount regulated than exchange-based trades, which creates a spread of opportunities, however additionally some risks that you would like to be aware of.

What is an OTC exchange?

Over-the-counter (OTC) securities are traded directly between counterparties while not being listed on an exchange is said to be an OTC exchange.