Over the counter (OTC) trading is done outside of regular exchanges via dealer networks. OTC instruments can be various like stocks, bonds, or commodities.
OTC Market Explained
The famous Collateralised Debt Obligations (CDOs) that were one of the causes of the Global Financial Crisis in 2008 were traded over the counter.
Sometimes the OTC market is labelled as risky because it’s less regulated, but it shouldn’t have that bad reputation attached to it. Bonds, for example, do not trade through a central exchange but via banks that act like dealers and market these securities.
Is the Forex Market OTC?
Forex, where you trade currencies, is an OTC market because it’s traded in a decentralised market via computer networks. Some stocks trade in the OTC market because they don’t meet the requirements to list on the exchanges or don’t have the money to pay to get listed but it doesn’t mean they are bad companies.
