What Is Over-the-Counter (OTC)? Definition, Risks, Example

What Is Over-the-Counter (OTC)?

By Robin Hartill, CFP – Updated Oct 13, 2025 at 6:52 PM

Key Points

OTC trading involves securities not listed on major exchanges, requiring diligence due to low transparency.
OTC Markets Group offers tiered exchanges; top tier OTCQX has the strictest transparency rules.
Investing in OTC securities can expose you to risks like low liquidity and high volatility.

Most stocks trade on a major stock exchange, like the Nasdaq or the New York Stock Exchange. But some securities trade on decentralized marketplaces known as over-the-counter (OTC) markets. There are a number of reasons a stock may trade on OTC markets, but often it’s because the company can’t meet the stringent requirements of a major exchange. Learn how OTC trading works and what you should know before investing in OTC securities.

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An infographic explaining over-the-counter markets and their three primary stock exchanges. — Image Source: The Motley Fool

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Brokerage Account

An account that holds and trades investment assets such as stocks, mutual funds, exchange-traded funds, bonds, and certificates of deposit.

OTC Markets Group (OTCM +0.57%) is a publicly traded company that provides an open market for about 12,000 OTC securities. The company has three different exchanges:

OTCQX Best Market: This exchange is considered the top tier for OTC securities. It has the strictest transparency standards, requiring annual audited financials and timely disclosure of material news. Penny stocks, companies in bankruptcy, shell companies, and blank-check companies are ineligible for inclusion.
OTCQB Venture Market: This exchange is reserved for early-stage companies with a minimum bid of $0.01. Although the reporting standards are less stringent compared to the Best Market, companies must provide annual audited financials and current reports to a U.S. regulator, such as the Securities and Exchange Commission (SEC). Companies in bankruptcy are prohibited.
Pink Sheets: Pink Sheets securities have scant reporting requirements, no minimum financial standards and are generally considered the riskiest of the three exchanges.

Over-the-counter securities that don’t trade through OTC Markets Group are known as grey market securities. These markets are unregulated, and broker-dealers don’t quote their prices.

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a graphic defining the term otc or over the counter — Image source: The Motley Fool

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Stock Exchanges: Where Shares Are Bought & Sold

The markets where people buy and sell stock come in several different flavors.

What Is the Nasdaq Stock Exchange?

The second-largest stock exchange in the world focuses on technology, listing over 3,000 securities.

NYSE: What Is the New York Stock Exchange?

The biggest stock exchange in the world has a long history.

Trading on the Over-the-Counter (OTC) Market

These stocks don't trade on the major exchanges but may still have a place in your portfolio.

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About the Author

Robin Hartill, CFP, is a contributing writer at The Motley Fool. Robin’s work has also been published by Yahoo Finance, USA Today, and Penny Hoarder. She is a graduate of the University of Florida.

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Robin Hartill has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends OTC Markets Group. The Motley Fool recommends Nestlé. The Motley Fool has a disclosure policy.