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Over-the-counter (OTC) securities, also known as "OTC equity securities" or “unlisted securities”, are financial instruments and shares that are traded directly between two parties, without being listed on a public stock exchange. Securities traded over-the-counter are facilitated by a broker-dealer network that specializes in OTC markets.
OTC markets provide investors with broader access to a wider array of shares and investment opportunities. OTC trading helps promote equity and financial instruments that would otherwise be unavailable to investors. Companies with OTC shares may raise capital through the sale of stock. This is beneficial for companies that have difficulty listing their securities on major stock exchanges due to their smaller size or lack of financial performance records.
OTC markets are considered to be less liquid and less regulated than securities traded on major exchanges. Investors buying and selling OTC securities often have less protection than they do if they chose to trade securities on a formal exchange. Generally, most OTC stocks are not widely followed by large Wall Street brokers. Because of this, the risk of manipulation and other forms of investor abuse can be increased.
OTC markets offer advantages for both buyers and sellers. Investors may be able to access higher yields, lower prices and more detailed information about the security. As OTC markets are not dependent on the exchange clearing house, investors may incur fewer charges. For sellers, the lack of exchange requirements can allow more flexibility in terms of pricing, access to broader markets and liquidity.
Overall, Over-the-counter (OTC) securities offer investors with a unique platform that allows for more diversity, broader access to smaller companies’ shares and more cost-effective prices. Although OTC markets are not as closely regulated as exchanges, the risks associated with OTC trading can be managed through careful research and due diligence. As OTC markets contribute to investors’ portfolios, the rules and regulations in the markets will continue to be shaped to protect both buyers and sellers.
OTC markets provide investors with broader access to a wider array of shares and investment opportunities. OTC trading helps promote equity and financial instruments that would otherwise be unavailable to investors. Companies with OTC shares may raise capital through the sale of stock. This is beneficial for companies that have difficulty listing their securities on major stock exchanges due to their smaller size or lack of financial performance records.
OTC markets are considered to be less liquid and less regulated than securities traded on major exchanges. Investors buying and selling OTC securities often have less protection than they do if they chose to trade securities on a formal exchange. Generally, most OTC stocks are not widely followed by large Wall Street brokers. Because of this, the risk of manipulation and other forms of investor abuse can be increased.
OTC markets offer advantages for both buyers and sellers. Investors may be able to access higher yields, lower prices and more detailed information about the security. As OTC markets are not dependent on the exchange clearing house, investors may incur fewer charges. For sellers, the lack of exchange requirements can allow more flexibility in terms of pricing, access to broader markets and liquidity.
Overall, Over-the-counter (OTC) securities offer investors with a unique platform that allows for more diversity, broader access to smaller companies’ shares and more cost-effective prices. Although OTC markets are not as closely regulated as exchanges, the risks associated with OTC trading can be managed through careful research and due diligence. As OTC markets contribute to investors’ portfolios, the rules and regulations in the markets will continue to be shaped to protect both buyers and sellers.