Beginner's Must-Read | What's the Difference Between Listed, OTC, and Emerging Stock Markets? Understand the Three Investment Channels in One Go

Stock investing may seem simple, but it is actually full of hidden complexities. Different listing markets represent completely different investment risks and potential returns. This article will delve into the core differences between listed, OTC, and emerging stocks, helping investors quickly find their own positioning.

Three Concepts New Investors Most Often Confuse

When should you choose listed stocks?

In Taiwan, companies aiming to trade on the “Taiwan Stock Exchange” (TWSE) follow the listing route. In the US, the two main markets are the New York Stock Exchange (NYSE) and NASDAQ.

Listed companies must pass strict review standards. The Securities and Exchange Commission (SEC) sets a comprehensive set of eligibility criteria for companies seeking to list—this protects investors but also means that only companies that have undergone “rigorous screening” can be listed. After listing, companies are required to disclose financial data regularly. Companies that fail to meet requirements face the risk of delisting.

Two main advantages of listed stocks:

• Sufficient trading volume, easy to buy and sell, quick entry and exit
• Relatively moderate volatility, better price stability

Typical listed companies like TSMC, Delta Electronics, MediaTek, etc., are established firms with a solid foothold in their respective fields. These stocks are most suitable for novice investors, conservative groups with low risk tolerance, and those seeking long-term investments.

Why do OTC stocks attract growth-seeking investors?

The OTC trading venue is the “TPEx” (Taipei Exchange), which operates with a completely different trading mechanism from the stock exchange. Listed stocks are traded through centralized matching on the exchange, while OTC stocks are held in inventory by brokerage firms, and investors trade through them.

The OTC market’s scope extends far beyond stocks, including bonds, foreign exchange, cryptocurrencies, ADRs, and various derivatives. Due to market diversification, the entry barrier for OTC is much lower than for listed stocks, providing more opportunities for growth-oriented and mid-sized companies to gain exposure.

Features of OTC stocks:

• Greater volatility than listed stocks, but also higher potential gains
• Rich company themes, easy for “dark horse” stocks to emerge
• Moderate trading volume, relatively smooth trading

This market attracts investors with a basic investment foundation, willing to accept moderate risk, and seeking growth stocks or thematic stocks.

Is Emerging Stock Board a forbidden zone for beginners?

Emerging Stock Board (興櫃) is a transitional stage for companies that have not yet met OTC standards. Common emerging stocks include startups, biotech and medical device R&D firms, small and medium enterprises, and newly established teams with promising themes.

Key characteristics of emerging stocks:

• No price fluctuation limits, prices can surge or crash instantly
• Low trading volume, difficult to sell, may be stuck with unsold shares
• Much lower transparency of financial reports compared to listed and OTC companies

Emerging stocks offer tempting opportunities but carry the highest risks. Strongly discouraged for beginners, unless you have deep individual stock analysis skills and only a very small portion of your capital invested.

Overview Table of the Three Markets: Let the Numbers Speak

Where are listed, OTC, and emerging stocks traded in Taiwan?

Taiwan Stock Market Trading Scenes

Listed stocks: traded directly on the Taiwan Stock Exchange

OTC stocks: traded via the OTC Securities Trading Center, requiring brokerage order placement

Emerging stocks: need to confirm that the broker has OTC trading qualification, and enable trading at the counter or online. Due to high risk, signing a risk warning form is required. OTC trading uses a “negotiated price” system, with no automatic matching, slower transaction speed, large price jumps.

The three tiers of OTC in the US market

The US OTC market (OTC Markets) is divided into three tiers based on regulation:

1. Best Market (OTCQX)
The most strictly regulated OTC tier. Penny stocks, shell companies, and bankrupt companies are not eligible. Companies must report financials to the SEC. Usually includes foreign companies already listed abroad and those planning to uplist to NYSE or NASDAQ.

2. Venture Market (OTCQB)
Between the Best Market and Pink Market. Focuses on early-stage and developing companies. No minimum financial standards, but bankrupt companies are excluded. Companies must provide annual financial reports prepared according to accounting standards.

3. Pink Market (PINK)
Lowest threshold—just submit an electronic form to FINRA to get listed. No requirement to disclose financial information or register with SEC. As a result, Pink Market carries the highest risk. The protagonist in the famous movie “The Wolf of Wall Street” profited from trading Pink Market stocks.

Public Disclosure of Listing Application Conditions

High barriers for listing

Taiwan listing conditions:

1. Company established for more than 3 years
2. Paid-in capital of NT$600 million or more
3. Pre-tax net profit meets one of the following standards, with no accumulated losses in the latest fiscal year:
   • Pre-tax profit for the last two years each accounts for more than 6% of share capital
   • Average over the last two years reaches 6%, with improved profitability in the latest year
   • Each of the last five years exceeds 3%
4. Besides insiders and legal entities holding over 50%, at least 500 other registered shareholders with over 20% ownership or 10 million shares

US listing conditions: NYSE requirements are generally higher than NASDAQ. NASDAQ accommodates more companies, divided into three segments, from national to small-cap markets, with standards decreasing step by step.

Interestingly, unprofitable companies can also list on NASDAQ—just need a 2-year operating history and 5 million shareholders’ equity. Compared to Taiwan, US listing standards are more flexible.

Relatively lenient OTC requirements in Taiwan

Taiwan OTC conditions:

1. Company established for at least 2 full fiscal years
2. Paid-in capital of NT$50 million or more
3. Pre-tax profit ratio over share capital meets one of the following, with no accumulated losses:
   • Over 4% in the latest year
   • Over 3% in each of the last two years
   • Over 3% on average over two years, with improvement in the latest year (Note: net profit in the latest year must be at least NT$4 million)
4. Besides insiders and legal entities holding over 50%, at least 300 other registered shareholders with over 20% ownership or over 10 million shares

US OTC conditions: Much more relaxed than listing. Just submit relevant documents and ensure the stock price has not fallen below $0.01 in the past 30 days to enter the Best or Venture Market. Pink Market only requires a simple form to get listed.

How can investors buy different types of stocks?

How to trade listed stocks

Taiwan: Open a securities account with a broker and trade

US: Open an overseas broker account or use a repurchase agreement. Pay attention to trading hours—US market times are based on Eastern Time (ET):

• Regular trading hours: Monday–Friday 9:30–16:00
• Daylight Saving Time (March–November): Taiwan time 21:30–4:00
• Standard Time (November–March): Taiwan time 22:30–5:00

US markets are closed on holidays; always confirm before trading.

Suitable for: Stock market beginners, conservative investors, value stock enthusiasts, long-term holders

How to trade OTC stocks

Taiwan: Place orders through a securities broker, requiring a signed account agreement

US: Most overseas brokers support OTC stock trading; after opening an account, you can trade

Suitable for: Investors with a foundation, capable of handling moderate risk, seeking thematic stocks, and more advanced investors

How to trade emerging stocks

Emerging stocks are traded very differently. Investors must:

• Confirm the broker has OTC trading qualification
• Enable trading at the counter or online
• Sign risk warning documents

Trading rules are strict: only “spot stock” orders are allowed, margin trading, short selling, and day trading are prohibited, and trades must be in whole lots (1,000 shares). Uses a “negotiated price” system, requiring both buyer and seller to agree on a price, resulting in slow transactions, no fluctuation limits, and very low liquidity.

Suitable for: High risk-tolerant traders, those skilled in individual stock research, with small capital proportion, and active traders. Absolutely not suitable for beginners.

Profit and Risks of Investing in Various Stocks

The Bright and Dark Sides of Investing in Listed Stocks

Advantages:

• Strong return potential: According to Motley Fool, the S&P 500’s average annual return over nearly 30 years is about 10%, far surpassing bonds at around 5%
• Stable dividend income: Most listed companies pay dividends regularly (usually quarterly), creating passive income for investors
• Good hedge against inflation: The 30-year returns of the S&P 500 and Dow Jones are approximately 10% and 8.7%, easily beating inflation

Risks:

• Market volatility: Stock prices can drop 10% or more in the short term, and such fluctuations are common
• High research costs: Requires in-depth fundamental and technical analysis, and continuous monitoring of company and market developments

Opportunities and Hidden Dangers of OTC Stock Investment

Advantages:

• Wide selection: Many foreign companies listed abroad choose not to relist on the main exchange and instead enter OTC markets, offering more choices. For example, Volkswagen (VWAGY.US) trades on the Pink Market.
• High leverage for small investments: Low stock prices mean that a stock rising from $1 to $1.5 yields a 50% return, making capital utilization highly efficient

Risks:

• Loose regulation risks: OTC companies disclose far less information than listed companies; Pink Market companies may disclose nothing at all, increasing speculation and risk
• Low trading volume: Difficult to find buyers, investors may face “no market” situations, leading to delays or large bid-ask spreads
• Extreme volatility: OTC stocks are highly sensitive to macroeconomic data, with frequent sharp rises and falls upon data releases

Three Steps for Beginner Investment Planning

After comparing the full spectrum of listed, OTC, and emerging stocks, you should understand their respective risks and benefits. For novice investors, starting with listed stocks is the most prudent choice, gaining experience before gradually exploring OTC markets. Emerging stocks should be approached with caution and avoided unless necessary.

Before starting, ask yourself these three questions:

1. How much investable capital do I currently have?

Calculate your income, living expenses, debts, and savings clearly to accurately assess the amount available for investment. Stocks are tools for wealth growth, not a get-rich-quick gamble. Never invest all your assets in stocks—this is the most common investment trap.

2. Have I prepared enough knowledge?

Mastering basic stock investment knowledge helps you make more accurate decisions. Essential learning includes:

• Reading company financial reports and conference call transcripts
• Consulting industry reports from investment institutions
• Absorbing professional analyst insights

These expert-processed information sources are far more valuable than blindly chasing trends.

3. What are my investment goals?

Having clear goals provides direction. Set monthly or yearly financial targets to give your investment plan a measurable path. Without clear goals, you’ll be led by daily news and short-term fluctuations, ending up with nothing. Once goals are set, market noise will no longer disturb your judgment.

Conclusion:
Listing stocks are suitable for beginners to enter the market steadily; OTC stocks are better for advanced investors seeking growth; emerging stocks are territory for seasoned traders. Finding your own market level is the first step toward successful investing.