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Listed or OTC Stocks? These Top Traders Weigh In!

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Written by Timothy Sykes
Updated 4/17/2022 6 min read

Listed or OTC Stocks: Key Takeaways

  • Which reigns superior — listed or OTC stocks? Matt and Kyle face off!
  • See the biggest pros and cons of each so you can decide which best suits your trading style…
  • And see which stocks offer the most potential for a small account…

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Which is better — listed or OTC stocks? The short answer: it depends. To help you answer which is better for YOUR strategy, millionaire traders and Trading Challenge moderators Kyle Williams and Matthew Monaco weigh in.

Read on to learn the key differences in listed and OTC stocks straight from Matt and Kyle!

OTC and Listed Stocks: What’s the Difference?

matt monaco and tim sykes
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Hey, Matt here.

Today, Kyle and I break down the differences between OTC and listed stocks. We’ll also go over some pros and cons for each type of stock.

But before we get into any of that, let’s cover some basics. Listed stocks trade on one of three exchanges:

  • Nasdaq
  • New York Stock Exchange (NYSE)
  • American Stock Exchange (AMEX)

Listed stocks have to stick to a lot of regulations to stay on a major exchange. So they must file regularly with the SEC and maintain a minimum bid price.

OTC stocks don’t have the same stringent requirements. That’s what makes them so sketchy. There are three tiers for OTC stocks:

  • Pink sheets

Each tier comes with different filing requirements. Pink sheets have little to no filing requirements. OTCQX stocks have the most.

Since I trade both OTCs and listed stocks, I’ll cover listed stocks. Kyle’s primarily an OTC trader, so he’ll dig into what you should know about OTCs.

Listed Stocks: Pros and Cons

As a trader, I like to go where I find the best action. So I flip between trading OTCs and listed stocks. I trade the stocks that offer the most opportunities and always look for big percent gainers.

  • Pro: Commission-Free Trading. Most brokers offer commission-free trading for listed stocks. That’s great if you have a small account. You don’t have to worry about fees eating into your potential profits.
  • Pro: Liquidity. Listed stocks trade high volume. That means you can enter and exit trades easily. And you can get filled almost instantly — even with a limit order.
  • Con: After-Hours Trading. This isn’t always a bad thing. It depends on your strategy. Some traders love to trade in premarket and after hours. But if you hold a listed stock overnight, there are risks. The company could do an offering. You don’t want to get caught in that situation.

OTC Stocks: The Good and the Bad

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Kyle here. I’m mostly an OTC trader. I usually trade OTCs about 80% of the time and listed about 20%. But when the OTC market slows down, it evens out to about 50/50.

You have to constantly evaluate the markets and adapt. Here’s what I like about OTCs. But like anything, there are always good and bad factors to consider. Here’s a quick lowdown:

  • Good: They’re Easier for New Traders. OTCs move slower than listed stocks. I think that makes it easier to read price action. Listed stocks can move FAST and overwhelm new traders. OTCs aren’t as choppy as listed stocks. They trade smoother and have cleaner charts. They’re also lower-priced, which is great for small accounts.
  • Good: No After-Hours Trading. I live on the West Coast so the market opens at 6:30 a.m. I’d have to get up at 3:30 or 4:30 a.m. to watch premarket. No thanks. And by the time the market closes, I’m done. If I hold an OTC overnight, I don’t have to think about it until the market opens the next day.
  • Bad: Hard to Fill Orders. Again, OTCs don’t have the same liquidity as listed stocks. That means it can be harder to get your order filled — VERY frustrating.
  • Bad: Not Great for Stop Losses. Harder to fill orders also means your stop loss might not get executed. I use mental stops, so it’s not a huge deal for me. It really depends on how closely you can watch the market.

Listed vs. OTC Stocks: What’s Right for You?

You’re the only one who can answer this question. It comes down to your trading style, schedule, account size, and experience.

Traders like Matt and me often learn to trade both, even if we have a strong preference. Sometimes listed and OTCs stocks run hot at the same time. Other times they shift back and forth. It all depends on the sector and overall market momentum.

Find what works best for you.

Hope this helped you, and don’t forget — the TWIST podcast is back! Matt doesn’t want to hang with cool traders anymore (kidding!), so Mariana’s taking his place. New episodes drop on Saturdays.

Check out the latest TWIST episode here.

You can also catch us every trading day in the Small Cap Rockets and Breakouts and Breakdowns chat rooms on StocksToTrade.

Get the same education we both received from Tim Sykes — apply for his Trading Challenge.

What do you prefer — listed or OTC stocks? Let us know in the comments!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”