What is the Over-the-Counter Market?
- Over-the-counter stocks are not listed on an exchange. Buyers and sellers trade through technology, such as a telephone, fax or electronic network. This is a decentralized equity market, unlike the NASDAQ or New York Stock Exchange (NYSE). Brokers that operate in the over-the-counter markets are regulated by the Securities and Exchange Commission, which oversees the other national stock exchanges.
What is traded in the over-the-counter market?
- The fact that the OTC market is not as well-known as the NYSE or the NASDAQ does not mean that OTC are any less recognizable. Equities of companies not listed on the national exchanges are traded. Moreover, corporate bonds and government securities are also traded through the OTC market.
- OTC Risk
- Trading in the OTC market is riskier than trading on the NYSE or NASDAQ. While the SEC regulates the broker-dealers that trade in the OTC market, it does not oversee the market itself. There are two main components of the OTC market: the OTC bulletin board and the Pink OTC Markets. These are merely conduits for the trading and unlike the NYSE and NASDAQ, they do not have strict eligibility rules, if any. This translates into greater risk for investors.
What are the Differences Between the Markets?
- The NYSE is the oldest stock exchange in the United States. Dating to 1792, the NYSE has a physical trading floor where shares of stock are bought and sold. The NYSE joined with Euronext in 2007. The NASDAQ is a stock market where both domestic and international common stocks are bought and sold. Stocks traded in this market must meet NASDAQ’s listing requirements. NASDAQ is a market-value weighted index, meaning that each listed company’s stock affects the greater market in proportion to the stock’s market value. There are over 5,000 companies listed on the NASDAQ. This makes it the largest stock market index. The primary difference between the OTC market and the NYSE and NASDAQ is that the OTC market is decentralized. OTC markets do not trade equities that are listed on national exchanges, such as NASDAQ or the NYSE.
Disclaimer: November 9, 2010. © jedijazz,chucksometimes, All rights reserved
The trading of securities may not be suitable for all people. You should be aware of the risks inherent in the stock market. Past performance does not guarantee or imply future success. You cannot assume that profits or gains will be realized or that any recommendation made will be profitable. The purchase of securities discussed by us may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities, or making any investment decisions. You assume the entire cost and risk of any investing and/or trading you choose to undertake. All information provided is obtained from sources believed to be accurate and reliable. However, due to the number of sources from which information is obtained, and the inherent hazards of electronic distribution, there may be delays, omissions, or inaccuracies in such information.