Differences between NASDAQ and the OTC Market

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Published Quotes
NASDAQ stock prices are quoted regularly in newspapers which allows you to keep track of the prices of your stocks. Since OTC stocks are not traded in an open market but only between brokers, you must rely upon your broker to get you the information.

Conflict of Interest 
Where your broker has an inventory of OTC stocks that he or she wants to sell, once such broker recommends to you to buy such stock, he put himself or herself in a conflict of interest. In such cases the broker is not acting as your agent but in fact acting as a principal in his or her own name. Your trade confirmation should indicate this.

Difficult to Make Money
In addition to the concerns of fraudulent schemes and scams that OTC stocks are vulnerable to, because the stocks are thinly traded and the spread between the bid and ask are quite large it is quite difficult to make money. For example, where the bid is $2 and the ask is $3, to buy such stock you will normally have to pay the $3. However unless new buyers come in and raise the bid to $3, you might not ever make any money. In other words, the bid price must at least rise to $3 for you to break even. This is not the case with NASDAQ stocks since there is a real market not controlled by brokers.

Lack of track record
Many of the OTC companies are new with no proven track record. Their products or services are new or in development and only time will tell whether they will be a success or failure.

Lack of Information
Wall street brokerages do not follow OTC stocks for a number of reasons. Accordingly, there is a lack of information on which to judge and assess these OTC companies. The only information that you can usually obtain are from the brokers who are trying to sell their own inventory. This of course is not the case with NASDAQ companies.

Because of the foregoing factors, investing in OTC companies are quite risky because of the lack of filing and other information, no proven track record and the lack of liquidity. It is for this reason why we discourage any one from buying into the OTC market. If you still want to invest, then recall the “buyer beware” adage and be prepared to lose everything.

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