What is the over-the-counter (OTC) market?

The over-the-counter (OTC) market is a market with no fixed location, unlike the one occupying a building in central London. London Stock Exchange (LSE). Dealers control the over-the-counter market because prices are set by them as they wish. The transaction is not completed at the actual counter, but through telephone, mail or instant messaging services.

Where have you heard of the OTC market?

The OTC market played an important role in the financial crisis of 2007-2008, a period in which housing mortgage-backed securities, collateralized debt obligations (CDOs) and collateralized debt obligations (CMOs) are traded on the over-the-counter market. In essence, the primary problem is the inability to accurately price assets because buyers and dealers are beginning to abandon the over-the-counter market.

What you need to know about the OTC market...

There are two basic ways to organize financial transactions: exchanges and over-the-counter markets, which are essentially bilateral markets in which participants trade with each other rather than through exchanges. The over-the-counter market has no physical location and traders communicate via telephone, email and proprietary trading systems.

Bonds, currency and stocks are traded on the over-the-counter market like money market instruments.

There are two types of OTC transactions. One is trading between dealers and the other is trading between dealers and customers. The price set by a dealer for another dealer may differ significantly from the price set for a client.

The over-the-counter market is less organized than traditional exchanges, but informally means that traders can make trades quickly.

Investors in the OTC market do not need to publish trades or prices in order to complete a transaction. But since the 2007-2008 financial crisis, countries have increasingly regulated over-the-counter markets and tried to attract more investors from traditional exchanges.