In this article, we describe the “OTC market”. what is it exactly? how it works?
What is an ” Over-The-Counter” Market?
An over-the-counter market is a market where trading is directly between two parties, without any supervision. It is a market where financial instruments such as currencies, stocks trade directly. Also, trading is completely sn electronically action.
OTC is a decentralized market, without a central physical location.
Market participants trade with one another through various communication modes. for instance the telephone, email, and proprietary electronic trading systems. the market consists of all the participants trading among themselves.
Basic features of the OTC markets:
- trade equities, bonds, currencies, derivatives, and structured products.
- Trading on the market carries risks such as counterparty and liquidity.
- The over-the-counter market lacks transparency.
In the below feature you can understand the basic differences of OTC Markets and regular or organized market:
Things you must be aware of:
Over-the-counter trading can sometimes lack buyers and sellers. As a result, the value of a security may vary widely depending on which market markers trade the stock.
While OTC markets function well during normal times, there is an additional risk, called a counter-party risk. for instance, when one party in the transaction does not make the trade or payments that are required of them by the contract.
Both parties arrange an agreement about the conditions based on their mutual consent.
If you are interested to know more about OTC markets you can simply click here.