I don’t need to tell you that when it involves stock exchange investing it is a dog eat dog world! Make one small mistake and you’ll see years and years of careful savings and investing evaporate within the blink of an eye fixed.
But the over-the-counter stock exchange, that’s an entirely different beast completely! The over-the-counter market is that the wild entirely West where almost anything goes. If the regular stock exchange is dangerous, then the over-the-counter market is life threateningly dangerous…
Why is that? Because the over-the-counter market deals with small stocks that are very thinly traded. Even without shenanigans, a stock may drop out of the sky because the corporate is just not excellent.
But under the worst of circumstances there are all types of crazy things which will continue including manipulation and trading because this market isn’t as tightly regulated because the major stock markets are.
Still, there are some things that you simply can do to assist insulate yourself from most of the danger and that is what I’m getting to mention during this article today.
The first rule is to only invest once you have a transparent idea of why you would like to take a position.
Repeatedly we buy over the counter stock just because it is so cheap and that we stand to form a killing if it increases even a touch. that’s no reason to shop for a stock. you ought to only buy stock for sound fundamental reasons, i.e. the corporate may be a good company that has good prospects for future growth. Without that future growth, there is no reason to take a position ever.
The next rule is to understand that over-the-counter stocks are nearly always short-term plays. this suggests that you simply should never buy one without a transparent selling target in mind.
The stocks tend to fluctuate wildly in prices and in no time in the least your sell target could also be reached, sometimes quicker than you expected. If this happens, pull the trigger and sell immediately albeit you’re tempted to ride the wave a touch longer. What goes up quickly can sink even as quickly within the OTC market!
Next, realize that up to 85% of all new issues will usually be selling below their issue price within the primary year and a half because most of those new stocks are overpriced once they are first issued and after the primary year approximately the excitement has worn off and therefore the stock drops.
Next, pay special attention to the auditors of a replacement issue. you’ll determine who the auditors are by reading the prospectus carefully. If you’ve never heard of the auditor, that’s a red flag and you ought to maybe consider deed. Auditors are all about reputation. Without a reputation and auditor’s numbers are just that… numbers, they’ll not mean anything!
Finally, do some research on the underwriters. If the brokerage that’s underwriting the OTC issue has been in trouble within the past with the SEC, this might be a transparent indicator that you’re over the counter stock isn’t as solid because it may look. Good companies use good auditors and good brokers for his or her underwriting. Less solid companies take what they will get.
Investing in OTC companies are often tons of fun, even as I’m sure living within the Wild, you are West way back when was also tons of fun. If you think that you’ve the temperament then I wish you all the luck within the world, not that you’re going to need it!