OTC, an acronym for Over-The-Counter, refers to the process of buying or selling securities that are not traded on the formal regulated exchange. It encompasses the trading of various financial instruments, including stocks, bonds, derivatives, and commodities directly between parties without the need for intermediaries, such as exchanges or clearinghouses.
In OTC transactions, buyers and sellers negotiate and agree upon the terms of the trade, such as price, quantity, and settlement date. These agreements are typically facilitated through electronic platforms or telephone communication. As the trading activities occur outside the exchange, the prices of OTC securities are determined by the market participants themselves, based on factors like supply and demand dynamics, liquidity, and individual negotiation skills.
OTC markets provide increased flexibility and accessibility for investors and issuers, allowing them to tailor transactions to specific needs. However, they often involve higher risks due to the absence of regulatory oversight and standardized rules. Consequently, OTC markets are subject to less transparency and are more prone to market manipulation and fraud compared to exchange-traded securities.
Furthermore, OTC can also describe non-prescription medications, also known as over-the-counter drugs. These are medicinal products that can be purchased directly by consumers without a prescription from a healthcare professional. OTC drugs are typically used to treat minor ailments and symptoms, and they are widely available in pharmacies, supermarkets, and other retail outlets, offering convenience to individuals seeking self-medication for common health conditions.
