Hi 33renee33, The following is an excerpt from an article written by TMF Jay which is an article on securities fraud. It will explain what an OTC board is. Read it carefully. the bull market continues to rage, there are more and more stories about people who put a few thousand dollars in a stock and watched their investment soar to tens or even hundreds of thousands of dollars. For some investors, this translates into pressure to find then next "hot stock." Unfortunately, an increasing number of people think the "hot stocks" are microcap or penny stocks. After all, who can resist a sales pitch that begins by telling prospective investors that if they had bought Microsoft, Intel, Yahoo!, or eBay when they were fledgling companies with stock prices of a few bucks, they'd be multimillionaires by now. The allure of these millions is what has spurred the popularity of the microcap stock market. Let's first take a look at what the microcap market is, and then we'll give you our Foolish opinion. A microcap stock, or penny stock, is defined as a stock whose price is less than $5 per share. Most microcap companies have limited assets (anywhere from a few thousand dollars to a couple million dollars), and most of the time their stocks trade a few thousand shares per day, or may go days without trading at all. In many instances, these are companies that have no history of operations or earnings, and their entire business is still in the idea stage. Microcap stocks are usually traded in The Wild West of the financial world -- the over the counter bulletin board (OTCBB) and the pink sheets. The OTCBB is an electronic quotation system that allows brokers to enter price bid and ask prices (The bid is the price closest to the last transaction that buyers are willing to buy at. The ask is the price closest to the last transaction that sellers are willing to sell at). The pink sheets are updated daily by the National Quotation Bureau and are only available to subscribing brokers. Unlike other trading markets, like the New York Stock Exchange or Nasdaq, neither the OTCBB nor the pink sheets have a minimum listing requirement, meaning that stocks with prices of just a few pennies can get listed on the OTCBB or in the pink sheets. So you're thinking of investing in a microcap company -- where and how do find out more about the company? Good question. Any company that has more than 500 shareholders and $10 million in assets is required to file annual and quarterly reports with the SEC. These reports are integral to any investment decision since they contain information about the company, its management, its products, and audited financial statements. Most microcap companies do not have to file these reports with the SEC because they do not have the requisite number of shareholders or level of assets. This lack of public information is one of the biggest reasons the microcap market is a forum ripe for fraud. Public information is perhaps the most important ingredient to making an informed investment decision. You can't do that if you don't have this information. Additionally, because most microcap companies have no operating or earnings history, there is usually no analyst or press scrutiny of the stock. The end result is that there is an absence of unbiased information in the marketplace. Because of this dearth of information, and because microcap stocks usually trade a few thousand shares per day if at all, they can be illiquid, or hard to sell. Thus, if you get in, you may have trouble getting out. Currently, there are approximately 6,400 companies on the OTCBB. That's a lot of companies floating around without the information investors need. What do we at The Motley Fool think of microcap stocks? Our counsel on any company that you like is to wait for it to be valued by the market for at least $5 a share. Because of a penny stock's low price, it is very easy for a fraudster to gain control of the outstanding shares. Once a fraudster secures a large percentage of the outstanding shares, it becomes quite easy to artificially manipulate the stock's price. Penny stocks are the public market's own brand of lottery ticket -- the engine of financial dissolution among those who have not been educated about money. The reason your broker doen't trade these stocks should be obvious. May I suggest you choose some companies that you like and learn to look at their financial records. Check out the different strategies on the Motley Fool and maybe choose one you are comfortable with?Take care!kanaredorah
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