Page 185 - Initial Public Offering - An Introduction to IPO on Wall Street

12.2.5 Learn to Anticipate Market Volatility
Despise volatility in investments but accept volatility in the market. You can regulate the
volatility of portfolios, but the unavoidable volatility of financial markets cannot be
regulated. You should also be ready to seize investment opportunities regardless of the
volatility in the market. You need to be mindful of overvalued assets at the same time and be
ready to switch to cash when situations are unfavorable.

12.2.6 Consider Fees
You have to trade via a broker when buying and selling stocks, who normally charges a fee
for each trade. Avoiding regular trading can reduce fees for transactions. You can also
consider mutual fund investments that do not charge a "load" or trading fee; they are a form
of professionally run investment that can hold hundreds of underlying assets such as
commodities, bonds, and stocks.

The above principles are critical to keeping in mind when trading stocks. Now, stocks can be
traded (sold and bought) on two different types of stock markets. We discuss these two types
of stock markets next.

12.3 Types

Stock markets are where traders come together to purchase and sell business shareholdings,
commonly known as stock shares. Most countries in the world have a stock market where the
buying and selling of stocks take place. However, in the U.S and a few other countries, stocks
can be traded on an exchange and over-the-counter.

12.3.1 Over-The-Counter
Over-the-counter (OTC) refers to the method of trading shares for firms not placed on a
formal exchange, such as the NYSE. Securities traded over-the-counter are offered, as
opposed to on a centralized exchange, through a broker-dealer system. Over-the-counter
markets or bulletin boards are hubs where securities that have not met more stringent leading
exchange criteria are listed.

Trade transactions take place via the listing facilities of the Pink Sheets or Over the Counter
Bulletin Board (OTCBB). An electronic quotation and trading service, the OTCBB enables
greater liquidity and better sharing of knowledge. A Pink Sheet corporation is a private
company that operates to sell small company securities by collaborating with broker-dealers.

Explanation of OTC

Stocks that trade through OTC are usually small firms that are unable to satisfy the formal
exchange listing requirements. Though, there are many other types of securities trading here.
Exchange-trading stocks are referred to as listed stocks, while OTC-traded stocks are referred
to as unlisted stocks. Trading of OTC securities occurs via broker-dealers who deal with each
other directly over computer networks and by telephone using the OTCBB. Utilizing the Pink
Sheets and the OTC Bulletin Board issued by the National Association of Securities Dealers
(NSAD), the dealers serve as market makers.

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