The OTCBB or OTC Bulletin Board is a quotation service offered by National Association of Securities Dealers (NASD) that provides real-time quotes, volume information and last selling prices for OTC or over-the counter stocks.
These securities or equities do not usually meet the listing requirements of larger exchanges such as the NASDAQ, NYSE etc.
The brokers or agencies that use this service to determine prices for OTC equities.
These OTC securities are also known as penny stocks or microcap stocks.
They are called penny stocks because one share is frequently less than $1.
Due to the lack of regulation by the Securities and Exchange Commission or some other credible regulatory body for these microcap stocks, a lot of smaller and institutional investors avoid them.
As far as trading these securities is concerned, it is similar to trading on other exchanges.
Investors need to have an authorized broker who can put in buy or sell orders.
Market makers in turn have to confirm that the trades are honored at the price that was quoted on a given volume.
In case you weren't familiar, market makers are member firms that keep the financial markets working efficiently by quoting both the bid and ask prices for securities.
These firms take on the risk of holding a fixed number of shares of securities so that trading can take place.
Market makers display buy and ask quotes for a fixed number of shares.
In order to fulfill orders they either sell shares from their own inventory or look for an order from someone willing to bet against the previous order.
This process of give and take completes in a matter of seconds.
You must be wondering how these market makers make money.
The difference between the bid and the ask price or the spread as it is called is where these firms make their money.