In this video we talk on what is OTC market and explain OTC market with an example. The trading in an OTC Market takes place directly between the two parties without the involvement of an external exchange or a broker.
OTC market is a decentralized market where trading of stocks, commodities, currencies and other instruments takes place.
In this video OTC Market is explained along with OTC trading strategies. However, the traders need to acknowledge the fact that since no exchange or broker is involved in OTC contracts, the OTC markets are less transparent. This is also because there are fewer regulations in an OTC market. Liquidity in an OTC market comes at a premium owing to fewer regulations and non-involvement of exchanges in the transactions between the two parties.
Over the counter market works well during the normal trading days, however, there is an additional risk involved known as the counter-party risk. The counter-party risk in OTC market holds that one of the parties in the transaction will default prior to the completion of the trade making defaults in the payments required for the completion of the contract. The OTC has some unique features like stock restrictions, minimum capital required, and large company restrictions.
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