How It Works
The primary reason a stock is traded "over the counter" is because the company may be too small to meet the formal exchange listing requirements. OTC stocks may be referred to as "unlisted stocks" because they are traded privately through broker-dealers over the phone and computer networks.
[InvestingAnswers Guide: The Lowdown on Penny Stocks]
Instead of being listed on the NYSE or another formal exchange, OTC stocks are usually listed in the Over the Counter Bulletin Board (OTCBB) and/or on pink sheets. OTC stocks can sometimes be purchased through an online broker.
Bonds are considered over the counter because they are not traded on a formal exchange. To trade a bond, an investor must call the investment bank that the bond is traded through and ask for rates to perform the over the counter exchange.
