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Trading and Investment Terminology

Over The Counter Market

An over the counter (OTC) market can be described as a decentralized market in which market members exchange securities, commodities, currencies as well as other financial instruments of investment, directly between two people and in the absence of a central stock market exchange or broker.

 

Over the counter markets don't have physical areas; rather, exchanging is led electronically. This is altogether different from an auction market system.

 

In an Over The Counter market, dealers go about as market makers by providing prices at which they going to purchase and sell a stock, currency, or other financial instruments of investment .

 

An exchange can be executed between two members in an Over The Counter market without others monitoring the prices at which the exchange was finished.

 

All in all, Over The Counter markets are generally less transparent than official stock market exchanges and are also have to comply with fewer rules.

 

Due to this liquidity in the Over The Counter markets might come at a premium.

 

Lack of transparency might also result in a vicious cycle to form during times of financial crisis, as was the situation during the 2007 - 2008 worldwide credit crisis.

 

Over The Counter markets are principally used to exchange bonds, currencies, derivatives as well as structured products.

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