what is otc market

The OTC market is a decentralized financial market where buyers and sellers trade directly, including foreign exchange, bonds, commodities and derivatives transactions. The main characteristics are decentralization, customization, low liquidity and low transparency. Participants include market makers, brokers, investment banks, hedge funds and institutional investors.

What is the over-the-counter trading market (OTC market)

The over-the-counter trading market (OTC market) is a Decentralized financial markets where buyers and sellers trade directly with each other without going through a central exchange. It differs from an exchange-traded market, which is where buyers and sellers transact on a standardized trading platform.

Main features of the OTC market:

• Non-centralized: OTC transactions are conducted directly between buyers and sellers, without a central exchange .
• Customization: Transactions can be customized according to the specific needs of buyers and sellers, including transaction terms, contract size and settlement method.
• Low Liquidity: OTC markets are generally less liquid than exchange-traded markets because trading is sporadic and not public.
• Low transparency: The price and trading volume of OTC transactions are usually not disclosed, resulting in low market transparency.

Types of OTC market transactions:

Types of OTC market transactions include:

• Foreign exchange transactions:Buy and sell different currencies.
• Bond Trading: Buy and sell government and corporate bonds.
• Commodity trading: Buy and sell commodities such as crude oil, natural gas and precious metals.
• Derivatives trading: Buy and sell contracts based on underlying assets, such as options and swaps.

OTC market participants:

OTC market participants include:

• Market Maker: A company or individual that provides two-way quotes and is ready to trade a specific asset.
• Broker: The middleman who facilitates transactions on behalf of buyers and sellers.
• Investment Bank: A large financial institution that provides customized trading services to institutional clients.
• Hedge Fund: Funds that use leverage and complex trading strategies to invest.
• Institutional Investors: Entities that manage large amounts of money, such as pension funds and sovereign wealth funds.

The OTC market plays a vital role in the financial system as it provides flexibility, customization and the ability to trade large volumes. However, it has also received some criticism for having low liquidity and lack of transparency.

The above is the detailed content of what is otc market. For more information, please follow other related articles on the PHP Chinese website!