Over-the-Counter (OTC)

What Is Over-the-Counter (OTC)?

Over-the-Counter (OTC) is a term used to describe financial instruments that are traded directly between two parties, without the need for an exchange or intermediary. OTC transactions can include stocks, bonds, commodities and derivatives such as options and futures contracts. These types of trades are often referred to as “off-exchange” trading because they do not take place on any formal stock exchange.

The main advantage of OTC trading is its flexibility; it allows traders to customize their own terms and conditions in order to meet their specific needs. This includes setting different prices for buying and selling securities, negotiating payment methods, determining settlement dates and more. Additionally, since there is no central clearinghouse involved in these transactions, costs associated with executing them tend to be lower than those incurred when using exchanges. As a result, many investors prefer this type of trading over traditional exchanges due to its cost savings potentials.

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