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Difference between OTC and Exchange

Difference between OTC and Exchange

There are two types of markets for trading assets: OTC markets and exchange markets. The main difference between these two market types is the way orders are handled. In an OTC market, orders are handled between the two parties directly involved in the trade. There is no central order book, and orders are usually bilateral agreements. In an exchange market, orders are handled through a central order book that is accessible to all traders. Orders can be filled by multiple parties, and there is always a buyer and seller for every asset. This article will discuss the key differences between these two market types.

What is OTC?

The OTC over-the-counter market is a decentralized market where securities are not traded on formal exchanges. OTC trading is done in the interbank market, which is a network of dealers that trade with each other. OTC trading is used for both bonds and stocks that are not listed on exchanges. The OTC market is also known as the off-exchange market. It is a less regulated market than the formal exchanges, which can make OTC trading more risky. OTC markets are open to all types of investors, but most OTC trading is done by professional institutional investors, such as banks and hedge funds. OTC markets are more secretive than formal exchanges, so it can be difficult to get accurate information about OTC prices and volumes.

What is Exchange?

Exchange market is a marketplace where various currencies are traded against each other, based on the current market value of those currencies. Exchange rates fluctuate constantly, affected by a wide range of political and economic factors. The Exchange market is the largest and most liquid financial market in the world, with trillions of dollars worth of currency traded every day. Exchange markets play an important role in the global economy, providing a way for countries to buy and sell goods and services using different currencies. Exchange markets also provide a way for investors to speculate on the future movements of currency prices. Exchange markets are open 24 hours a day from Sunday evening to Friday evening, making them one of the most accessible financial markets in the world.

Difference between OTC and Exchange

OTC, or over-the-counter, refers to the process of trading securities between two parties without the use of an exchange. OTC trading is done in OTC markets, which are decentralized and not subject to the rules and regulations of formal exchanges. OTC markets are also typically less liquid than exchange-traded markets, meaning that there may be greater price volatility and larger bid-ask spreads. Exchange-traded securities, on the other hand, are traded on formal exchanges such as the New York Stock Exchange. These exchanges are highly regulated and offer greater transparency, liquidity, and price stability. However, they may also impose higher costs in terms of commissions and fees. When selecting a market for trading securities, investors must weigh the pros and cons of OTC and exchange-traded options in order to find the best fit for their needs.


The OTC market is a decentralized marketplace where buyers and sellers trade securities outside of traditional exchanges. Because there is no central authority, the OTC market has less regulation and transparency. This can make it more difficult for investors to get accurate information about prices and trading volume. For this reason, the OTC market is often used by large institutional investors who have the resources to do their own research. The exchange market is a centralized platform where buyers and sellers meet to trade securities. Exchanges are regulated by government agencies and provide greater transparency than the OTC market. This makes them a better choice for smaller investors who want access to reliable information about prices and trading volume.

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