Over-The-Counter - OTC
 |
Definition of 'Over-The-Counter - OTC'A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network. |
 |
Investopedia explains 'Over-The-Counter - OTC'In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records. Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes. |
Related Definitions
Articles Of Interest
-
The Lowdown On Penny Stocks
Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless. -
Market Makers Vs. Electronic Communications Networks
Learn the pros and cons of trading forex through these two types of brokers. -
Introduction To Counterparty Risk
Unlike a funded loan, the exposure from a credit derivative is complicated. Find out everything you need to know about counterparty risk. -
The Dirt On Delisted Stocks
Listed securities are "the cream of the crop". Find out how a firm can lose that status and why you should be wary. -
Getting To Know The Stock Exchanges
Here are the answers to all the questions you have about stock exchanges but are too afraid to ask! -
The Global Electronic Stock Market
The way trading is conducted is changing rapidly as exchanges turn toward automation. -
Can a bond be traded over-the-counter?
Bonds can be traded over-the-counter (OTC) and, in fact, the majority of corporate bonds that are issued by private and public corporations are traded OTC rather than on exchanges. Furthermore, ... -
What am I buying and selling in the forex market?
The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank for International Settlements, the average daily trading volume reached ... -
How do I buy an over-the-counter stock?
The process of purchasing over-the-counter (OTC) stocks is different than purchasing stock from companies on the NYSE and the NASDAQ. The major difference is that OTC securities are unlisted, ... -
Can investors short sell pink sheet or over-the-counter stocks?
Short selling is an effective trading strategy that can be employed to hedge the risk of a loss on an off-setting position or to speculate on an equity's price movement. In essence, short selling ...
Free Annual Reports
