What is over the counter?

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"Over the counter" (OTC) refers to the trading of financial instruments directly between two parties, without a centralized exchange or intermediary. In OTC markets, buyers and sellers engage in transactions directly with each other rather than through a public exchange. This contrasts with exchange-traded markets, where trades are conducted on a centralized platform such as a stock exchange.

Some common examples of over-the-counter markets include:

1. OTC Stocks: Certain stocks are traded OTC rather than on major exchanges like the New York Stock Exchange (NYSE) or NASDAQ.
2. OTC Derivatives: Derivative products, such as over-the-counter options and swaps, are often traded directly between parties without going through an exchange.
3. Forex (Foreign Exchange): The forex market is primarily OTC, with currencies traded directly between participants, usually through electronic trading platforms or over the phone.
4. Bonds: While some bonds are traded on exchanges, many are transacted OTC, especially in the case of corporate bonds and debt securities.
5. Cryptocurrencies: Many cryptocurrencies are traded on OTC markets, where large transactions can be facilitated directly between institutional buyers and sellers.

In OTC trading, the terms of the transaction are negotiated between the parties involved, and the trade is usually facilitated by brokers or dealers. The lack of a centralized exchange means that OTC markets can be less transparent than exchange-traded markets, and pricing may vary between different transactions.

It's important to note that while OTC trading provides flexibility and privacy, it also comes with certain risks, and participants should exercise caution and conduct due diligence when engaging in over-the-counter transactions.