Understanding the core differences between listed, OTC, and emerging markets — choosing the right market makes investing more efficient

Many people who are new to the stock market often find themselves confused by the concepts of “Listing,” “OTC,” and “Emerging.” This article will clarify the fundamental differences among these three markets from an investor’s perspective, and how to choose the right one based on your risk tolerance and investment goals.

Comparison of the Three Major Markets: A Table to Clarify Core Differences

Listing Market: A Safe and Friendly Entry Point for Investment

What is Listing?

Listing refers to companies being officially traded on a stock exchange. In Taiwan, this is the “Taiwan Stock Exchange” (TWSE); in the US, mainly the “New York Stock Exchange” (NYSE) and “NASDAQ.”

Listed companies must meet strict listing criteria set by the exchange. After passing review, they can issue shares for investors to buy and sell. Post-listing, companies are required to disclose detailed financial data quarterly. Failure to meet exchange requirements can lead to delisting. Due to this rigorous screening process, listed companies typically have:

• High trading volume and liquidity — Easy to buy and sell without worries about finding counterparties
• Relatively stable price movements — Price fluctuations are limited, avoiding sharp short-term swings
• High transparency — Financial data is reliable, making rational decision-making easier

Examples of typical listed companies in Taiwan include TSMC, Delta Electronics, and MediaTek.

Advantages of Investing in Listed Companies

1. Potential for Significant Returns: According to market data, the average annual return of the US S&P 500 over the past 30 years is about 10%, far exceeding bank deposits and government bonds.
2. Passive Income: Many listed companies regularly pay dividends (usually quarterly), providing a stable cash flow, though not all companies pay dividends.
3. Inflation Hedge: Stock market returns often outpace inflation, helping to preserve purchasing power over the long term.

Risks of Investing in Listed Companies

1. Market Volatility: Despite price fluctuation limits, short-term declines of over 10% are possible, requiring strong psychological resilience.
2. High Research Costs: Investors need to analyze fundamentals and technicals themselves and continuously monitor company developments, which can be time-consuming.

OTC Market: A Middle Ground of Growth and Risk

What is OTC?

OTC trading involves broker-dealer inventories matching buyers and sellers, rather than centralized exchange trading. Taiwan’s OTC platform is the “OTC Center” (TPEx), and in the US, there are multi-tiered OTC markets (OTC Markets Group).

OTC markets not only trade stocks but also include bonds, foreign exchange, cryptocurrencies, ADRs, and derivatives. Compared to listing, OTC has much looser entry requirements, attracting many growth-stage and mid-sized companies, with both opportunities and risks.

The Three Tiers of OTC Markets (Using US OTC as an Example)

1. Best Market (OTCQX): The most regulated OTC tier. Penny stocks, shell companies, and bankrupt firms are excluded. Companies must submit financial reports and disclosures to the SEC; many foreign companies already listed or preparing to list on NYSE/NASDAQ are here.

2. Risk Market (OTCQB): A middle ground between the best market and pink sheets. Includes early-stage and developing companies. No minimum financial standards, but companies must submit annual reports compliant with accounting standards; bankrupt companies are excluded.

3. Pink Market (PINK): No barriers to entry. Companies only need to submit an electronic form to FINRA, with no requirement to disclose financial data or register with the SEC. Due to this, it carries the highest risk. The protagonist in the movie “The Wolf of Wall Street” mainly deals in pink sheet stocks.

Highlights of OTC Investment

1. Wide Selection: Many well-known international companies (e.g., Volkswagen VWAGY.US) choose OTC trading instead of secondary listing in the US, giving investors access to more targets.
2. Low Cost, High Return: OTC stocks are generally cheap; a move from $1 to $1.5 yields a 50% return, making capital utilization more efficient.

Risks of OTC Investment

1. Weak Regulation: OTC companies, especially pink sheets, have minimal disclosure, making it hard for investors to assess authenticity, increasing speculation and fraud risks.
2. Liquidity Concerns: Overall trading volume is low, which can lead to situations where stocks exist but have no buyers, causing delays and large bid-ask spreads.
3. High Volatility: OTC stocks are sensitive to macroeconomic and market data releases, often experiencing large swings, increasing trading difficulty.

Emerging Market: The High-Risk, High-Reward Extreme Arena

What is Emerging?

Emerging (Emerging Stock Board) is a transitional stage for companies that haven’t yet met OTC standards but want to raise funds publicly and build market recognition. Typical emerging companies include startups, biotech firms, R&D teams, and small to medium enterprises with promising themes.

Emerging markets are characterized as “extreme”:

• No price fluctuation limits — prices can drop 50% one day and rise 100% the next
• Lowest liquidity — negotiated trading rather than automated matching, slow transactions, large spreads
• Least transparent information — financial disclosures are far less comprehensive than listed or OTC companies
• Only spot trading allowed — no margin trading, short selling, or day trading permitted

Investors must sign a risk warning and purchase in whole units (e.g., 1,000 shares).

Who Should Invest in Emerging?

Emerging is suitable only for three types of investors:

1. Experienced investors with strong risk tolerance
2. Those capable of fundamental analysis and discerning genuine themes
3. Speculators with small capital who can bear extreme losses

Beginners should avoid altogether.

Complete Conditions for Listing, OTC, and Emerging Applications

Why Understand Application Conditions? Stricter conditions mean more rigorous screening, reducing investor risk. Conversely, looser conditions increase risk.

Hard Requirements for Taiwan Stock Listing

1. Company registered for over 3 years under the Company Act
2. Paid-in capital of at least NT$600 million
3. Pre-tax net profit meets one of several standards (e.g., over 6% of paid-in capital for the past two years, or over 3% for the past five years), with no accumulated losses in the most recent year
4. At least 500 registered shareholders excluding insiders, with external shareholders holding over 20% of issued shares or at least 10 million shares

Relatively Lenient Conditions for Taiwan OTC

1. Registered for at least 2 full fiscal years
2. Paid-in capital of at least NT$50 million
3. Pre-tax profit exceeding 4% of paid-in capital (or over 3% for the past two years), with no accumulated losses in the most recent year; net profit in the most recent year not less than NT$4 million
4. At least 300 registered shareholders excluding insiders, with external shareholders holding over 20% or at least 10 million shares

US Stock Listing: Three-Tier Structure

NYSE has the highest standards, while NASDAQ offers three segments to attract more companies:

• Global Market: Highest standards, suitable for large enterprises
• Capital Market: Moderate standards, for mainstream companies
• Small Cap Market: Loosest standards, designed for startups

Even companies without profits can list on NASDAQ if they have at least 2 years of operation and $5 million in shareholder equity. Compared to NYSE, NASDAQ standards are more flexible.

US OTC Market: Very Low Barriers

The best market and risk market only require companies to submit documents and ensure their stock price remains above $0.01 in the past 30 days; pink sheets only require a form submission.

How to Buy and Sell Stocks in the Three Markets?

Trading Listed Stocks

Taiwan Listed Stocks: Trade through a Taiwanese securities broker by opening a securities account. Trading hours are 9:00–13:30 Taiwan time.

US Listed Stocks: Via overseas brokers or via cross-border delegation. US trading hours are 9:30–16:00 ET, Monday to Friday. Due to time difference:

• March–November (Daylight Saving Time): 21:30–4:00 Taiwan time
• November–March (Standard Time): 22:30–5:00 Taiwan time

Also, watch out for US holidays when markets are closed.

OTC Stocks Trading

Taiwan OTC: Place orders through a securities broker after opening an account and signing an agreement.

US OTC: Most overseas brokers support OTC trading; open an account to participate.

Emerging Stock Trading

Ensure your broker supports emerging stock trading, open the account either in person or online, and sign a risk warning. Trading is negotiated; after placing an order, both parties must agree before execution. The process is slow, and prices can jump significantly.

Five-Step Decision Framework for New Investors

1. Assess Your Financial Situation

Calculate income, living expenses, debts, and savings to determine truly investable funds. Never invest all your assets in the stock market as a gamble.

2. Determine Your Risk Tolerance

• Low risk: Focus on listed markets, especially blue-chip stocks and index funds
• Moderate risk: Allocate some funds to OTC growth stocks
• High risk: Consider emerging thematic stocks, but keep the proportion under 5%

3. Conduct In-Depth Research and Analysis

Master basic investment knowledge. Read financial reports, consult analyst reports, and understand industry trends. For beginners, prioritize mature industries over emerging sectors.

4. Set Clear Goals

Establish monthly and yearly financial targets. Having goals helps maintain discipline and avoid being swayed by short-term fluctuations and market noise.

5. Monitor and Adjust Continuously

Regularly review your portfolio performance and adjust strategies flexibly based on market changes and personal circumstances.

Final Advice

For new investors, gradually build experience: start with the listed market to learn fundamental and technical analysis, develop market sensitivity. Once experienced, consider exploring OTC for growth opportunities. As for emerging markets, unless you have strong research skills and a resilient mindset, it’s best to avoid for now.

Remember: investing is a marathon, not a sprint. The three markets—listing, OTC, and emerging—each have their place. The key is to choose the stage that suits you best.