Over-The-Counter Stocks

The largest security market in the world in terms of the number of different stocks and bonds traded is the over-the-counter (OTC) market. OTC is not located in any one place, but is primarily an electronic communications network of stock and bond dealers. These stocks are supervised by the National Association of Securities Dealers, Inc., which has the power to expel companies or dealers determined to be dishonest or insolvent. The over-the-counter market tends to get stocks of smaller companies, and by the 1990s had come to be known as a market where many of the fastest growing "high-technology" stocks could be bought and sold. Again, information about trading activity can be acquired through newspapers, magazines, or electronically. A brokerage house usually handles purchases and sales of these stocks along with those on the major exchanges.

Many persons who do not feel qualified to decide which stocks to purchase, but who nevertheless want to participate in the stock market in hopes of making a profit by doing so, turn to mutual funds. A mutual fund combines funds of its shareholders, which may be in small amounts, and invests large blocks of money in a varied portfolio of stocks, thus reducing the risk, which is another reason why many people prefer this method of investing in stocks.

Another advantage of mutual funds to the customer is that the fund's managers get professional advice from staff analysts. It is possible for a fund to employ such persons because the operation is on a large scale. There are dozens of kinds of mutual funds. Some are designed for income, some for capital appreciation, and others are speculative with the chance for large gains or severe losses. Some deal only with stocks of specific industries, or stocks of foreign companies, or companies whose activities benefit the environment. The number and variety of funds proliferated greatly in the 1980s; the total number of funds lumped from 524 to 2,918 over the decade, while the portion of U.S. households holding shares in mutual funds increased from 6 percent in 1979 to 25 percent in 1989.