OTC Market

• OTC stocks are traded in direct negotiations between brokers and market makers over computer networks or by phone. There are two OTC markets in the United States: The Over-the-Counter Bulletin Board trades stocks that fall off the Nasdaq, while Pink Sheets---named for the color of the paper on which listings are printed---include small companies with up to 300 shareholders.
  
  

OTC Trading

• An investor who wishes to trade in the OTC market must open an account with a broker, who then passes the orders to a market maker. Like dealers, market makers have their own stock inventories. The investor may monitor all asking prices and bids through the Over-the-Counter Bulletin Board.
  
  

Issuers

• The OTC market usually trades in small or "microcap" company stocks. Some investors consider these stocks too risky because issuing companies are new, not well-known, or do not have large tangible assets. There are, however, strong companies that deliberately decide to trade only in the OTC to avoid high fees for regulatory oversight.
  
  

Nasdaq

• Although it operates as a dealer network, the Nasdaq is actually a stock exchange, which means that stocks traded on it are not over-the-counter stocks.