How Does the Over-The-Counter Market Work?
Definition The over-the-counter (OTC) market refers to financial information traded between two parties through telephone, fax or computer networks instead of the traditional physical stock trading floor. An OTC market differs from the traditional stock market because it has no central trading place or meeting place. Companies that trade via OTC are typically very small and unable to qualify for the listing requirements required for traditional exchange listing. Companies also utilize the OTC market in order to reduce the costs associated with the traditional exchange market. In addition to stocks, bonds, commodities and derivatives are sold through an OTC market. Networks OTC stocks are unlisted stocks, however, there are two places online where they are traditional sold: Over-the-Counter Bulletin Board (OTCBB) and pink sheets. Nasdaq operates as a dealer network and is sometimes erroneously referred to as an OTC network but does not qualify because it qualifies as an actual exchange.
