over the counter or OTC trading is also
called off-exchange trading because as
the second name suggests a trade takes
place between two parties directly
rather than through a formal exchange
such as the New York Stock Exchange how
does it work
simply put trades are facilitated by
so-called broker dealers or if you will
market makers who communicate and
negotiate with one another through inter
dealer quotation services managed by
entities such as OTC Markets Group with
its OTC link or FINRA what is OTC
bulletin board while not as regulated as
let's say the New York Stock Exchange
various policies and eligibility
requirements do exist
OTC trading doesn't always have the best
reputation for reasons such as 1 less
liquidity with you perhaps being left
holding the proverbial bag upon
realizing that there are no buyers for
what you're selling or that you have to
lower your price expectations a lot to
find buyers to less transparency with
the price not even having to be publicly
disclosed 3 more pronounced counterparty
risk for example a derivatives deal
where one party agrees to buy an asset
from another at some point in the future
but one of the parties the false prior
to that contract expiring
there are however pros involved as well
for example one the fact that companies
which don't qualify for exchange
listings can still gain market access
with even Walmart starting out in the
OTC space to keeping the low profile
with some buyers and or sellers happy
what prices not being publicly disclosed
for various reasons and three less
regulatory red tape which for example
facilitates ultra speculative high risk
but also potentially high return penny
stock trading all in all love it or hate
it OTC trading is an option worth taking
into consideration