How to Trade Bulletin Board Stocks
Bulletin Board stocks are traded on the Over The Counter (OTC:BB) market. The market is managed by the NASD, and it is separate and distinct from the NASDAQ. Bulletin Board stocks are characterized by their stock symbol, either four or five letters, followed by the designator, ".OB". Bulletin Board stocks do not meet the various listing requirements of the broader exchanges and therefore pose a greater investment risk due to volatility, lack of liquidity, and larger Bid-Ask spreads.
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Instructions
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Open an account at a brokerage firm that permits trading in Bulletin Board stocks. Some do not. Most online discount brokers allow trading in Bulletin Board stocks. Some of the common brokerages that allow Bulletin Board trading are E-trade, Scottrade, TD Ameritrade, and Charles Schwab.
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Be aware of the commission structure. Many firms charge an extra fee to trade Bulletin Board and other lower priced "penny stocks." Often this fee structure is just a small percentage of the overall value of the trade plus the standard trading fee.
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Research the companies you want to invest in. Due to the more lax reporting requirements for Bulletin Board stocks, research may be hard to find. The OTC BB website is a good place to start. Their web address is listed below.
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When selecting a Bulletin Board stock, look for the stocks that have the largest volume. This generally indicates an actively traded issue; one with several market makers, tighter spreads, and better liquidity when the time comes to sell it.
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Always use a limit order when buying a Bulletin Board stock. Never use a market order if you can avoid it. For example, if the bid price of a stock is $3.50 and the ask price is $4, that is a 14% spread. Add the commission you pay to execute the trade and you might find yourself down almost 20% the minute you buy the stock. Most investors don't realize that they can offer to buy the stock somewhere in the middle of the spread, especially on Bulletin Board stocks. By placing a buy limit order at $3.65 a share, for example, one of the market makers might just decide to execute the order for you even though the stock is technically $4 a share.
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Tips & Warnings
Research a Bulletin Board company thoroughly before investing in it. Remember, there is a reason the company doesn't meet the listing requirements of the broader exchanges.
Bulletin Board stocks are notorious for pump and dump schemes. A professional stock promoter will be hired to publicize the stock and build volume and velocity in it, raising the price (the pump). This is often done by fraudulent means such as driving rumors on Internet message boards and releasing news that is simply not true. When the price of the stock rises because investors are duped into buying it, company insiders and the stock promoter then sell their shares at the higher price (the dump), forcing the price back down and costing shareholders their investment.
