The OTC trade, also off-board trade, designates financial transactions between financial market participants, who are not completed over the stock exchange. OTC stands thereby for for English term "Over the The Counter", which can be translated with "over the Tresen". The OTC trade is called on German board business.

Forms

One can differentiate between three forms of the OTC trade:

1. The off-board trade with listed securities. These business is completed as OTC business, if the partners involved do not want to make the business public.
2. The off-board trade with financial derivatives without standardized specifications (e.g. exotic options, OTC options).
3. The off-board trade with securities, which are not certified to the stock broking.

Stock exchanges offer only standardized products, which do not correspond however frequently to the security desire of the acting partners. If an enterprise would like to secure for example the risks of change of interest of an investment, it will find an instrument fitting run timemoderately for it only in exceptional cases at the stock exchanges. For some the products acted at the financial market is therefore more important the OTC trade than the stock broking.

By on-line brokers also private investors have to accomplish the possibility directly business with an emitter. The investor indicates here via Internet an inquiry at his on-line brokers over the price to indicated the financial product. The emitter communicates afterwards the obligatory purchase and selling price for the indicated quantity. The investor must itself thereupon within some seconds to decide whether he wants to lock this business on these conditions or not.

Pro and cons of the OTC trade

Advantages:

• Save the stock exchange fees, which would become due over the stock exchange with a trade
• Individual modification of the acted product.
• Speed by the direct trade between both trade partners

Disadvantages:

• Missing control and supervision
• Possibly missing reference markets
• No data possibilities of limit Orders (in the meantime partly possible)
• No insight possibilities into an order book, therefore only a smaller transparency of the market exists

Articles in category "OTC trade"

We found here 8 articles.