Over-the-Counter

Over-the-counter (OTC) trading refers to the process of trading financial instruments such as stocks, bonds, commodities, or derivatives directly between two parties, rather than through a centralized exchange like the New York Stock Exchange (NYSE) or NASDAQ. OTC trading is typically conducted via dealer networks or electronic platforms, allowing for more flexible and less regulated transactions. This type of trading is often used for securities that are not listed on formal exchanges, including smaller or less liquid stocks, as well as complex financial products like derivatives. The OTC market can provide greater privacy and the ability to negotiate terms directly, but it also carries higher risks due to less transparency and regulation. # What is Over-the-Counter Trading? Over-the-counter (OTC) trading is a decentralized method of trading financial instruments directly between two parties without the oversight of a centralized exchange. This type of trading is facilitated through dealer networks or electronic platforms, offering a more flexible and less regulated environment. # How Does Over-the-Counter Trading Work? OTC trading operates through a network of dealers who negotiate directly with buyers and sellers. These dealers act as market makers, providing liquidity by quoting buy and sell prices for the securities they trade. Transactions are typically conducted via phone, email, or electronic trading systems. The lack of a centralized exchange means that OTC trades can be customized to meet the specific needs of the parties involved, but it also results in less transparency and higher counterparty risk.