Demystifying Over-The-Counter Trading

Over-The-Counter Trading

In a world constantly evolving with technology, the trading sphere is no exception. As investors look for newer ways to optimize their transactions and react promptly to real-time market shifts, Over-The-Counter (OTC) trading has taken center stage.

This method, pioneered largely by the inception of Electronic Communication Networks (ECNs), offers an alternative route to the conventional stock exchange system, allowing trades to be conducted over the Internet.

Whether you’re an institutional giant or a solo private investor, understanding the intricacies of OTC trading is crucial. This article delves deep into the world of OTC, exploring its advantages, associated risks, and its growing influence in today’s trading landscape. Dive in to get well-acquainted with this revolutionary trading avenue.

What is Over-The-Counter trading?

The development of ECN has led to the emergence of a new phenomenon in the field of trading shares. ECN is an interface that allows investors to trade over the Internet.

But that is not all. OTC trading allows institutional investors to enter the market incognitoly, hiding their actions.

Initially, this type of trading was used by institutions. However, since the 1990s, the situation has changed, and private investors have entered the market with the attraction of capital.

Currently, OTC trading is available at a wide range of prices through brokerage accounts.

There are several names for the current type of trading activity, but it is this term or OTC trading (Over-the-counter – bypassing the counter) that is most often used.

Over-the-counter trading is closed at the price of the last transaction with a security traded during this period.

Over-The-Counter Trading

Opening hours of the over-the-counter markets

The morning hours of the over-the-counter market (Premarket) are from 8:00 to 9:15. Evening hours (Postmarket) come from 16:15 to 20:00.

Some premarket trades may take place at 6:00 am on weekdays and last until the market opens.

Advantages of Over-The-Counter trading

OTC stock trading platform provides great benefits to traders. One of them is convenience.

Some investors prefer to trade during times of less activity and OTC trading as soon as it is possible.

The following important news and findings occur during OTC trading. And this, in turn, makes it possible to open transactions as soon as fresh information appears on the markets.

Accordingly, traders and investors should not expect the exchange to open to work with assets.

Moreover, despite the volatility that presents risks, especially during the close of the exchange, some prices can be very attractive during the OTC market.

Searching for the most best-priced stocks during the OTC trading period

Searching for low prices on volatile stocks is a well-trodden trading method. Such prices are therefore readily available through news sources, which helps to increase the prices of certain stocks accordingly.

Many of these news events occur, for example, during OTC trading and provide an opportunity to react to the publication immediately, without waiting for the next trading session.

A special calendar provides a list of stocks that you should pay attention to when trading over the counter.

It is important to note the list of promotions and restrictions in order to make them easier to manage.

To do this, it is enough to use a slow filter and select securities with a volume of about 1 million shares per day.

If volumes are set in stocks during the trading period, it is still unlikely that they will increase during the OTC period, even with the release of very important news.


Risks of over-the-counter trading

The development of this direction of trading allows investors to save significant profits. However, it is important to be aware of the technical risks that come with this.

These include:

  • Less liquidity. There are much fewer buyers and sellers during this period. Accordingly, situations are possible when volumes will be transferred and, as a result, it will be more difficult to sell it.
  • Wide spreads. Lower trading volumes can lead to wider spreads between bid and ask prices. As a result, there may be problems when executing a transaction at the desired price.
  • Difficult conditions for private investors. Traders are eligible for OTC trading, but they have to work against large institutional stages to provide access to a wider range of resources.
  • The over-the-counter market is more subtle than the exchange market. Therefore, there may be significant price fluctuations that are not observed during the period of the exchanges.

What is the NASDAQ 100 OTC Indicator?

This indicator allows you to know the expectations of traders and the stop after the close of the session.

It is calculated by measuring price levels during the NASDAQ 100 OTC trading period and uses the same methodology used to create the NASDAQ 100.

Shares do not trade during OTC periods, and some prices remain at the close of the session at the NASDAQ 100 settlement indicator.

The Bottom Line

Over-the-counter (OTC) trading offers a unique avenue for investors to engage in share transactions outside the standard exchange hours. Bolstered by the advancements of Electronic Communication Networks (ECNs), OTC trading offers real-time market engagement, allowing both institutional and private investors to react promptly to fresh market information and news. In essence, while OTC trading offers novel opportunities, it necessitates an informed approach to navigate its nuanced landscape effectively.

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.