Over The Counter Definition – What is OTC? | CFI LB

over the counter (otc)

OTC trading, also known as over-the-counter trading or off exchange trading, describes a transaction that is not conducted via a formal exchange. OTC trading creates plenty of opportunities for traders to partake in the forex, commodities, indices, and equities markets although it does carry a higher amount of risk than traditional investing which you should be aware of. OTC trades are executed via a dealer network and involve two separate parties.

 

The most common OTC market is the foreign exchange (Forex or FX) market, where currencies are traded 24 hours a day, 5 days a week via a network of banks and brokerages, instead of on traditional exchanges.

 

OTC trading can also include stocks, derivatives, and commodities.

 

Example of over the counter (otc) trading:

 

While there are some similarities, there are plenty of differences when you compare the OTC market with exchange trading. On a more traditional exchange, like the New York Stock Exchange, for example, you will see multiple buy and sell prices from various parties. However, with OTC trading, you will carefully choose one broker who you believe will offer you the best all-around trading conditions and go with the buy and sell prices they provide.

 

Key takeaways:

 

  • Otc trading is more flexible than compared to more standardized and regulated exchanges
  • Otc trading increases financial market liquidity, as companies that cannot trade on the formal exchanges gain the opportunity for exposure
  • Otc trades have greater flexibility but are also considered riskier
CFI Financial Group is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
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CFI provides execution-only services and does not provide any investment advice. To make an investment decision, you cannot rely on the content of this website, or on any information, opinion, report or other materials (“Information”) you receive from CFI, or its representatives. Such Information is general and does not consider your objectives and your financial situation, thus they shall not be considered in any way as an express or implied promise nor a guarantee of any profit or limit of loss. CFI shall not bear any liability in case you used or relied on such Information. Please ensure that you make your own research and seek independent advice if necessary.

Forex and CFDs are leveraged products that incur a high level of risk. A small adverse market movement may expose the client to lose the entire invested capital. The majority of retail client accounts lose money when trading in CFDs. Please be aware of trading risks and that you could sustain a loss exceeding your deposited funds, even if a stop loss is used.

CFI Lebanon is regulated by the Banque du Liban and the Capital Markets Authority

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