When you are reading about penny stocks you will probably come across the phrase OTC penny stocks.
But what are they and how do they affect you if you are thinking of buying some of these shares? The initials OTC stand for 'over the counter' and once you start delving into this area of penny stocks it is easy to understand what it means.
As you will see, this type of stock is rather different from the more mainstream type of stocks.
Here is the difference.
With a large company the penny shares will probably be traded on the New York Stock Exchange or a similar exchange.
But in order for a company to have their shares traded in this way they must have enough of them to warrant being traded on a proper exchange.
If the shares can't be traded on a big exchange because there aren't enough of them, they will be traded over the counter instead.
So when you see OTC penny shares you will instantly know that you are dealing with a company that is smaller and possibly brings with it slightly more in the way of risk as well.
Of course you need to be very careful no matter what type of penny stocks you invest in.
They are generally viewed as risky investments as the companies are smaller and have less value than bigger companies with more expensive shares.
But there is always the hope that you will find a company that eventually does extremely well and rewards you with a nice return on your shares.
Over the counter penny stocks do require you to be even more careful than you would be investing in general penny shares though.
Although lots of dealers are around to help you make these trades you stand more chance of coming across companies that will not provide you with a good investment.
Another term you will come across with regard to this type of stock is 'unlisted'.
This basically means it is not listed on a main exchange.
It is up to you whether you want to try investing in OTC penny stocks.
Some people like this type of stock but for others it represents too much in the way of risk.
Only you will know - after additional research - whether trading over the counter is suitable for your needs and appetite for risk.