Finance: What is Over The Counter (OTC)?

Over the counter refers to a trade transacted within a network of other dealers who are all trading stocks.

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Transcript

00:30

dealers all trading stocks think of it like everyone on Facebook had a trading [Facebook posts appear]

00:34

account nothing really is supervised door regulated or controlled it's just

00:38

the transaction happening among two strangers passing in the night [People walking around with smartphones]

00:41

exchanging glances get a fair deal on this trade well on the exchanges Amazon

00:46

was offered for fifteen hundred two dollars a share but on the OTC deck

00:51

network while it was offered at 1507 maybe you'll have overpaid five bucks a [Amazon share prices appear]

00:56

share for Amazon if you buy it here rather than on NASDAQ which is a normal

01:01

securities exchange well stocks bonds commodities derivatives they all trade

01:05

OTC and also on exchanges so why are there both methods of trading in the

01:10

first place well demand if everybody was happy with the trades they made from

01:15

9:30 to four New York time well then there wouldn't be a whole lot of demand [Stocks transferring from wall street]

01:19

for trading outside of those hours and in other places but there is so there is

01:23

an OTC trading accommodates after-hours trading as well which can be a really

01:28

big deal when a company announces earnings at 4:30 p.m. New York time and [Newspaper of record earnings for company appears]

01:32

the street either loves or hates the numbers that the companies printed the

01:36

stock can move a lot in a short period so a lot of investors are happy to be

01:40

able to either dump or scarf up positions in whatever calm at 4:32 p.m.

01:45

after the numbers have been published not wanting to wait the dozen in change [Clock rapidly ticks forward]

01:49

hours until the market opens again in the morning the basic idea behind OTC

01:53

trading is that the world of OTC is kind of the wild wild west of stock exchanges

01:58

unlike trading on the NYSE where companies have to meet very high

02:02

standards to be accepted for trading on the exchange qualify for OTC trading

02:07

while companies basically just have to spell their name properly fill out a few [Person signing a document]

02:11

forms and feel that belonging thing and even then

02:14

well you know there's a lot of flexibility