• The brokers and dealers transact in the OTC market without computer networks and phone.
• Generally, small companies. which fail to fulfil the listing requirements of a stock exchange, trade over the counter.
• In the exchange-traded market, securities, commodities, derivatives, and others are purchased and sold between brokers and traders in a regulated manner.
Over the counter (OTC) is the decentralised market in which the participants trade currencies, instruments, stocks directly without having any intermediary.
The brokers and dealers transact in this unorganised market without computer networks and phone. The OTC trading is also known by the name off-exchange trading because of the absence of a formal exchange.
Key differences between OTC and exchange
• While buyers and sellers transact with each other in an unregulated way over a computer network or phone in the OTC market, exchange refers to a trade exchange where securities, commodities, derivatives, and others are purchased and sold in a regulated manner.
• Dealers quote the buying and selling price of financial instruments in an OTC market; the prices are determined by the demand and supply forces in an exchange.
• Small companies that could not fulfil listing prerequisites of an exchange trade their securities OTC. However, big businesses generally list and trade their stocks via an exchange.
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