Learn more about OTC market. Over-the-counter (OTC) market is a decentralized market:
- without a central physical location,
- where market participants trade with one another through various communication modes such as the telephone, email, and proprietary electronic trading systems.
An over-the-counter (OTC) market and an exchange market are the two basic ways of organizing financial markets.
In this type of market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected.
Over-the-counter or off-exchange trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price.
In an OTC market, dealers act as market-makers by quoting prices at which they will buy and sell a security, currency, or other financial products. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was completed.1 In general, OTC markets are typically less transparent than exchanges and are also subject to fewer regulations. Because of this, liquidity in the OTC market may come at a premium. It is an important segment of the commodity market. This market is majority responsible for contributing towards the GDP and the national income of the country.
- It is a market in which participants trade directly between two parties, without the use of a central exchange or other third party.
- It does not have physical locations or market-makers.
- Some of the products most commonly traded over-the-counter include bonds, derivatives, structured products, and currencies.
In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations.
