Over-the-Counter
Over-the-Counter (OTC) is a term used to describe financial instruments that are traded directly between two parties, without the supervision of an exchange or other intermediary. OTC instruments are typically less liquid than those traded on exchanges, and often involve higher risk. OTC markets are decentralized, meaning that there is no single market or exchange where all trades take place. Instead, trades are conducted through a network of dealers, brokers, and other financial institutions.
History of Over-the-Counter
The term “over-the-counter” was first used in the late 19th century to describe the sale of securities that were not listed on any exchange. These securities were traded directly between two parties, without the supervision of an exchange or other intermediary. Over time, the term has come to encompass a wide range of financial instruments, including stocks, bonds, derivatives, and other complex products.
Today, OTC markets are used to trade a variety of financial instruments, including stocks, bonds, derivatives, and other complex products. OTC markets are often used to facilitate transactions that would be difficult or impossible to execute on an exchange, such as private placements or block trades. OTC markets are also used to trade securities that are not listed on any exchange, such as penny stocks or foreign securities.
Comparison Table
| Exchange Traded | Over-the-Counter |
|---|---|
| High liquidity | Low liquidity |
| Regulated by exchange | Unregulated |
| Transparent pricing | Opaque pricing |
| Lower risk | Higher risk |
Summary
Over-the-Counter (OTC) is a term used to describe financial instruments that are traded directly between two parties, without the supervision of an exchange or other intermediary. OTC markets are decentralized, meaning that there is no single market or exchange where all trades take place. OTC markets are often used to facilitate transactions that would be difficult or impossible to execute on an exchange, such as private placements or block trades. For more information, please visit the websites of the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC).
See Also
- Exchange Traded
- Private Placement
- Block Trade
- Penny Stock
- Derivatives
- FINRA
- SEC
- Liquidity
- Regulation
- Transparency
