Over-the-counter (OTC) markets are a form of trading that does not occur on a centralized exchange platform. In OTC transactions, parties trade directly with each other, usually through dealers or brokers, rather than using a centralized exchange.
Key features of OTC trading include:
Decentralization: Transactions occur outside the exchange, indicating the absence of a centralized trading platform.
Flexibility: OTC transactions may involve various financial instruments, including stocks, bonds, currencies, derivatives, and other securities.
Direct Interaction: Sellers and buyers engage in direct contact to execute transactions, often through dealers or brokers.
Lower Transparency: Since transactions are not public and not registered on an exchange, the level of transparency may be lower compared to exchange trading.
Flexible Pricing: Prices in OTC transactions can be flexible and subject to negotiations between parties.
Examples of OTC markets include forex trading, the bond market, the cryptocurrency market, as well as some stocks and derivatives. OTC trading is a vital component of global financial markets, providing flexibility and the ability to transact with various assets.
